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April 1, 2002

IPOs on March Back

By Colleen O'Connor

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It was no big deal in the recent heyday of IPOs, but these days more than two IPOs in one week can seem like a stretch. Still, it happened twice as the first quarter drew to an encouraging close.

Now, investors wonder if this is a sustainable trend, a trend fuelled by a market that has been reviving somewhat, especially in the defense sector. Defense contractor Anteon International Corp. (NYSE:ANT), real estate developer WCI Communities Inc. (NYSE:WCI), and automobile retailer Asbury Automotive Group Inc. (NYSE:ABG), all hosted successful public offerings, raising $483.1 million in new capital in mid-March.

Solid Sectors

However, while volume may have been returning to the market, all three of these recent pricings came from businesses in solid sectors that have moved through the economic downturn relatively unscathed. What's noticeably absent this year, market watchers point out, is thoughts of showcasing new business.

Out of 14 IPOs as of mid-March, just three - Paypal Inc., Synaptics Inc. and Zymo Genetics Inc. - hailed from emerging sectors.

While it is difficult to tell whether it is the underwriters or the investors who are leading the way, at least positive returns are evident. According to Renaissance Capital, which manages the IPO Plus Fund, the average new issue in 2002 has returned 12.3 percent over the past 12 months.

It appears that defense industry companies are all but handed cash just for registering. That's evident in the increasing popularity of their IPOs. Anteon, in fact, priced more shares at a higher price than it initially expected. The day it priced, the number of shares to be sold was increased by lead underwriter Goldman Sachs from 12.5 million to 15 million, while it increased its share price range from $15-$17 to $17-$18. In all, Anteon priced shares at $18 apiece, raising $270 million.

The deal's lift comes during a period of renewed energy for IPOs. As of press time, new filings are hitting highs for the year. The first two weeks of March had been the busiest two weeks since Oct. 7, 2001 through Oct. 20, 2001. In fact, more IPOs have been filed as of mid-March - 34 - than a comparable period a year ago when 27 were filed. The defense industry deserves much of the credit.

Three new filings from the sector have turned up in the first two weeks of March. On March 13, United States Marine Repair Inc. (proposed NYSE:URM) filed to go public. Seeking to raise as much as $160 million, the deal is led by Lehman Brothers. Share prices and the amount have not been released. Proceeds are aimed at repayment of debt. The company will not receive cash from the IPO, which will instead go to its selling stockholders, including The Carlyle Group, which acquired the company in November 1997 for $25 million.

United States Marine Repair provides ship repair, maintenance and modernization services to the U.S. Navy, which in 2001 accounted for 75 percent of its $390.7 million in revenue; the rest is derived from agencies associated with U.S. defense. For the year ended Dec. 31, 2001, it reported a net income of $10.1 million.