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CEOs see IPO chill thawing by year-end

While a number of CEOs consider the IPO climate downright hostile, they expect it to improve as early as the fourth quarter, according to new research from Ernst & Young.

While a number of CEOs consider the initial public offering climate downright hostile, they expect it to improve as early as the fourth quarter, according to new research from Ernst & Young to be released Wednesday.

Chief executives at the accounting and consulting giant's IPO Transformation CEO Retreat in California said greater enthusiasm from investors and higher valuations from underwriters would prompt them to schedule an IPO for their companies. A general economic recovery ranked third on their lists, with nearly 70 percent saying they expected the slowdown to continue through the fourth quarter and first quarter of next year.

Valuations for companies have fallen dramatically since the market's steep decline during the past year. IPOs have virtually dried up, with only five pure technology deals going out this year.

And while a number of executives expect the climate to turn around toward the end of the year, one industry watcher says he believes it may be too soon.

"I was surprised by the number of people who were optimistic that the fourth quarter is when it will all go away," said Stephen Almassy, Ernst & Young's global vice chairman of the technology communications and entertainment industry group. "I think the first quarter is also optimistic. If you look at the indicators today, no one is predicting that September will be any better than today. And we'll need at least six months after that for a recovery, so June quarter (2002) is when I see us having an uptick."

Fifty-three percent of the survey participants said the most important criteria before launching an IPO is to "act like a successful public company." That entails doing things such as speaking at investment conferences, increasing visibility, and installing software for financial systems.

"I think that response comes from their realization that times are changing, and we won't see the huge market caps and wild stock prices," Almassy said. "They're getting back to basics and building a company before taking it public."