IPO slowdown likely to continue in 2003

Associated Press

NEW YORK — After the worst year for initial public offerings in more than two decades, it seemed the market could only improve in 2003. But most analysts agree this won't be the year of the IPO comeback.

About 50 companies have said they intend to go public this year, but not all are likely to go through with their plans. Only 70 firms had IPOs in 2002, an abrupt slide from the years that saw more than 400 companies go public at the height of the market in the late 1990s.

"Investors are still licking their wounds from 2002," said Richard J. Peterson, chief market strategist for Thomson Financial. "It's tough going for bankers in the industry, as well as for companies that want to go public and raise capital. They're just going to have to fight it out and see when the bottom comes out."

Companies planning IPOs this year tend to be larger and more well-established than the high-tech startups that dominated the boom years. That's a reflection of the fact that investors burned in the dot-com collapse are unwilling to take chances on businesses that don't have a solid track record.

Several established media and entertainment companies are considering IPOs, including movie theater chains Loews and Cinemark, radio broadcaster Citadel, newspaper publisher Liberty Group and TV broadcaster Nexstar.

A handful of venerable retailers plan to go public this year, too, including Carter's, the nation's largest marketer of children's' clothing, established in 1865, and Converse, the athletic-shoe company established in 1909.

In addition, several energy, insurance and defense-related companies have filed papers with the Securities and Exchange Commission, and state regulators saying they're planning IPOs. They include El Paso Energy Management; oil and gas drilling contractor TODCO; Bermuda-based insurer Endurance; auto insurer Infinity Property and Casualty; and Aerospace defense contractor Vertex, formerly owned by Raytheon.

AOL Time Warner has said it is considering a spinoff of its cable unit in the second quarter. And Verizon Wireless, which shelved an IPO filing last year, might try again, according to research by Renaissance Capital, a firm in Greenwich, Conn., that tracks IPOs.

Last year was the slowest year for IPO volume since 1979, when 61 companies went public. With stock market prices tumbling for the third year in a row, companies had little hope of raising much money through a public offering.

To recharge the IPO market, more cash needs to flow to the equity funds that typically invest in IPOs, said Gary Simon, a New York securities lawyer. Such a turnaround would have to be investor-driven, and prospects for that seem bleak.

"The whole post-Enron climate is not going to go away so fast," Simon said. "The sense of distrust of corporate management, executive compensation excesses, other things like that, are going to linger for a long time."

Investor uncertainty, government scrutiny of Wall Street business practices and worries about a Mideast war have made for an ambivalent market. Few companies have set dates for their IPOs, and market researchers say the first deals of the year might not happen until February or March.

"Everyone is taking a big, deep breath right now, to start off 2003," said Kathleen Smith, an analyst with Renaissance Capital. "There is a little more of a January hiatus than is typical."

Another factor contributing to the current lack of volume, Simon said, might be that many companies went public prematurely during the late '90s.

Companies decide to offer their stock to the public for many reasons, primarily to raise capital or provide shareholders with an opportunity to sell their stakes on the open market. When small, rapidly growing companies go public — as many did during the 1990s — it can be very profitable for the original investors.

But now it seems the IPO has lost some of its fizzle among entrepreneurs, Simon said.

"When I used to counsel clients who were considering going public, they seemed very optimistic," Simon said. "Now there's a lot of ... sobriety."

And among people in the IPO business, Simon said, "there seems be a resigned negativism that it is not coming around so fast.

"To turn that around, you almost have to psychologically have a growing sense of optimism. And I don't see that at all."