Overview & Analysis: Page 2

IPOs Beat the Overall Market

Compared to the positive success, albeit not like years past, the IPO market was the place to be during the year. At least, deals ended the year on a positive note and with a manageable amount of deals in registration; promise exists for a strong 2002. That compares with downtrodden performances on the Dow Jones Industrial Average and Nasdaq Composite. For 2001, both indexes posted respective declines of 7.1% and 21.05%. Nevertheless, those market averages have come back since the market's hit a virtual bottom on Sept. 21. Since that time, the Dow and Nasdaq have gained 21.7% and 37%.

Prior to the Sept. 11 terrorist attacks, the IPO market began to show signs of life with increased deal volume. However, when the attacks occurred it halted all stock issuance for nearly one month. When underwriters began shopping deals on the Street they knew it wouldn't be any easy sell. Therefore, valuations came into play. An overpriced deal had little or no chance of pricing in this market. Underwriters who brought transactions out at more attractive levels saw upside movement in the aftermarket.

"Despite the worst bear market in a generation, companies have continued to raise money in the IPO market," said Renaissance Capital Management, managers of The IPO + Fund, in its latest recount on 2001's new issue marketplace. "Going public in 2001 necessitated that issuers accept lower valuations or risk alienating investors with poor stock performance. So, there were really only two reasons that a company would have chosen to go public in 2001. Companies either faced funding concerns or wanted to make strategic offerings."

Now, the details for 2001's deal flow. For the year, investment bankers paraded only 91 issues to market, raising a total of $37.1 billion. That is in clear contrast when a record number of IPOs were completed in 1996. During 1996, bankers introduced 874 entities to the Street, raising $50.1 billion. Still, the record year, in terms of proceeds, happens to be 1999 when underwriters totaled $100.6 billion. Of course, 1999 was a pivotal point in the dot-com hey-day.

[Our statistics exclude closed-end funds, unit offerings and deals priced under $5 per share.]

2001 was a year where investors will remember the shift from a bullish tone on Wall Street to a bearish overture. Although, Alan Greenspan and the Federal Open Market Committee trimmed rates by a record 11 times in 2001, it did little to stimulate the economy. With George W. Bush installed as the new president in 2001, the political landscape certainly changed.

Analysts' point out that the mammoth tax cut implemented by President Bush failed to stimulate the economy. Now, President Bush is trying to pass a huge economic stimulus package through Congress. Economists expect opposition to sections of the bill when it comes to vote in the U.S. Senate. While Democrats control the Senate, a compromise is likely to be negotiated.

Unlike prior time periods, IPOs spent more time on the runway in 2001. Based on our research, the average time a deal spent in registration was 154 days, opposed to 97 days in 2000. Analysts interviewed explain that the increased amount of time in registration was due to a harder sell by bankers.

Still, with the weaker offerings having postponed or withdrawn planned deals in registration, only more solid transactions remain in the pipeline. By Dec. 31, a total of 95 IPOs were in registration with the Securities and Exchange Commission that carry proposed proceeds of $14.2 billion.

Of that amount, Verizon Wireless plans on raising $5 billion from completing its long anticipated IPO. That amount doesn't take into account the major offering from Travelers Property & Casualty that is scheduled to take place during the early portion of 2002 as the entity hasn't filed its offering paperwork with the SEC as of yet.

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