IPO market set to awaken: rebounding capital markets and pent-up demand after several very lean years have set the stage for what could be a significant surge in new-offering activity.

• Author: Marshall, Jeffrey
• Position: Investments

Locked in a torpor for the better part of three years, the initial public offering (IPO) market may be doing a bit of a Rip Van Winkle--awakening after a prolonged slumber. Sunny news from the stock markets, corporate earnings and consumer confidence have seemingly sounded a wakeup call, though experts caution that any renewal of the explosive activity of the late 1990s isn't likely.

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After two very weak years, most observers expect substantial growth in both the number and volume of IPOs this year. One interesting source of fuel for the market is coming from China, where a few companies have gone public lately and risen sharply on anticipation of rollicking growth (see box). And expectations that Google, the Internet search engine giant, will go public in the spring has created a beehive of buzz, since it promises to be one of the largest issues in recent years.

"There's been quite a bit of activity, and there are a fairly substantial number of filings for the first quarter," says Tracy Lefteroff, a global managing partner at PricewaterhouseCoopers. "That doesn't suggest that all of them will get done. In many cases, people started drafting them in November and December, and the market's [increase since then] has done nothing but encourage them."

A chunk of last year's proceeds came in December, where 23 offerings--as many as the entire fourth quarter in 2002--totaling $5.72 billion were priced. Of that amount, $2.6 billion came from an offering by China Life Insurance, far and away the largest IPO in 2003. There were also several sizable real-estate investment-trust transactions that month.

Still, in comparison to the bubble years, when huge upswings often followed in the hours after the actual offerings, last fall's slate of IPOs have had "mixed" results, Lefteroff says, with some sliding below their initial offering prices. Yet, "there haven't been huge swings. It's not like people are leaving a lot of money on the table."

There is clear demand for "properly organized and well capitalized" companies, says Jonathan E. Cole, a Fort Lauderdale-based partner with the law firm of Edwards & Angell LLP, who says most recent IPOs have been trading up slightly, in the 5 percent-10 percent range. Most recent IPO issuers had revenues in excess of $50 million and were profitable, he notes, adding that's its still possible for a nascent biopharmaceutical firm to do an IPO "if they have a drug that addresses a substantial...