05 Aug 2010

Signs of Strength Emerge in I.P.O. Market

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New York (DealBook) | The I.P.O. pipeline for American companies expanded rapidly in the second quarter, nearing a record high for volume, as dozens of new companies filed registration statements for initial public offerings of their stock, according to Ernst & Young.

The growing number of potential stock offerings illustrates what appears to be a renewed optimism in the capital markets, even though some companies that have already registered remain nervous about a market downturn. If trading volatility eases in the coming months, there could be a bevy of new companies coming to market, reminiscent of the boom times in 2007.

Ernst & Young reports that 113 companies took steps in the second quarter toward holding stock offerings, up from 80 in the first quarter. These 113 companies are seeking to raise $25.3 billion, up 41 percent from the previous quarter. The vast majority of the volume, about 80 percent, consisted of companies that newly registered their stock for initial public offerings with the Securities and Exchange Commission, as opposed to secondary offerings.

“The resurgence of pipeline activity represents optimism about the growth of the economy and the markets,” Maria Pinelli, the Americans director of Ernst & Young’s strategic growth markets division, said in a report. “Renewed interest from foreign growth companies, including Chinese companies, also demonstrates the attractiveness of U.S. markets globally.”

There were a number of big companies that announced their intentions to go public, most notably HCA, the health care company, which was taken private in 2006 in a leveraged buyout. The company’s planned $4.1 billion offering surpasses the total dollars sought by the 22 companies in the technology sector through new stock offerings.

Two other billion-dollar deals that entered the pipeline in the second quarter were Nielsen Holdings, which is seeking $1.75 billion, and Kaslion Acquisitions of the Netherlands, now known as NXP Semiconductors, which is seeking $1.15 billion.

But a number of initial public offerings were pulled in the second quarter, leading to just 37 companies to hit the market. The skittishness came as financial markets worried about the European sovereign debt crisis. But that may be turning. The global I.P.O. market was up 18 percent in July from June, the highest level in 2010 since March, according to Thomson Reuters. The backlog in the I.P.O. pipeline could rush out in the coming weeks, providing those companies with new money and giving bankers those lucrative underwriting fees.

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