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July 31, 2001

Sizzling in the Spring

By Colleen O'Connor

The IPO market came charging back in the last quarter, raising some hope of more good times to come.

Despite investors' finicky nature, syndicate desks filled up order books from April through June, ending the quarter IPO market with dramatic gains over the first quarter of 2001.

Not only did banks raise 73 percent more proceeds in the second quarter than in the previous quarter, but the pop between opening and offering prices swelled, indicating that investors are still hungry for IPOs despite economic jitters.

Boosted by Federal Reserve rate cuts and an overall market uptick in April and May, the IPO market shook off its first quarter nap and raised $14.72 billion in new business as the second quarter wrapped up. Offerings came from a wider selection of sectors than energy, which overwhelmingly dominated in the first quarter. Most notable was the improvement in opening prices over offer prices for IPOs compared to the first quarter.

The 25 companies that priced in Q2, as a group, had opening prices that were 95 percent higher compared to opening prices from the group of 20 IPOs in Q1. For example, Third Wave Technologies (Nasdaq:TWTI) had a 22.2 percent pop, the largest of any IPO in the last quarter. Yet new issues in Q2 were substantially higher. Some examples were Unilab Corp. (Nasdaq:ULAB), which rose 34.3 percent as it opened, Tellium Inc. (Nasdaq:TELM), climbing 45.4 percent and Global Power Equipment (NYSE:GEG), which was up 47.5 percent.

Fatter Wallets

One analyst noted that, while one-day pops certainly indicate a healthy desire on the part of investors for IPOs, the result is that underwriters left more money on the table in Q2 than Q1. "With the exception of Kraft," he added.

The extensively watched $8.6 billion Kraft Foods Inc. (NYSE:KFT) IPO saw just a 1.61 percent pop in its $31 offer price when it began trading on June 13, demonstrating that its large underwriting syndicate priced the deal as aggressively as possible.

The deal's stock price sunk under the $31 offer the following day. Its mammoth underwriting team of 16, co-led by Credit Suisse First Boston and Salomon Smith Barney, pulled in as much cash as possible from the IPO.

Including Kraft, Credit Suisse was the quarter's busiest underwriter, pushing out seven deals and raising $11.11 billion. Last quarter, the bank did not lead manage any deals.

Excluding the numbers from Kraft, Credit Suisse raised $2.43 billion in Q2. However, it also shared the billing on the $1.56 billion offering of Reliant Resources Inc. (NYSE:RRI) alongside Goldman Sachs, which raised $1.79 billion in Q2 by pushing out three deals. Last quarter Goldman raised just $229.7 million.

In all, 13 underwriters saw activity this quarter, up just slightly from 11 in Q1.

The number "three," it appears, was the lucky number played by many of the investment banks in Q2.

Salomon Smith Barney raised $9.05 billion through three deals, yet that figure drops to just $377 million when the Kraft numbers are discounted. Lehman Brothers raised $984 million through three deals, jointly leading the $144 million IPO of General Maritime Corp. (NYSE: GMR) with ABN AMRO.

Lehman also stuck close to the energy formula that worked so well last quarter, as it pushed out Peabody Energy Corp. (NSYE:BTU) and Aquila Energy Corp. (NYSE:ILA), each worth $420 million. Lehman Brothers raised $252.5 million in Q1.

More Improvements

Merrill Lynch raised $463.5 million via three IPOs. Last quarter the bank raised $1.46 billion, having scored the $1.2 billion IPO from CNOOC (NYSE:CEO).

In addition to ABN AMRO, Banc of America Securities, Bear Stearns, C.E. Unterberg Towbin, and UBS Warburg showed up to lead deals, having been absent from Q1.

However, Wall Street investment banks certainly did more sharing than anything else this quarter. Eight IPOs were jointly co-managed in Q2, just two of which were billion dollar IPOs.

Colleen Marie O'Connor is associate editor at the IPO Reporter published by Venture Economics, a Thomson Financial Company.