1997 IPOs sputter, then pick up

It took five months and one online bookseller to restart the flagging tech IPO market this year.

But that boost was short-lived and nowhere near last year's torrid numbers for initial public offerings.

Wall Street this year took 147 technology companies public, generating $6.54 billion. That is about half as much as 1996 generated with its 244 tech IPOs that raised $13 billion.

Nonetheless, IPO analysts said 1997 wasn't a total dog. "This was still a healthy year, one of the better years on record," said Richard Peterson, an IPO analyst with Securities Data. "This was a continuation of the tech IPO explosion that started in 1992. It was a pause [compared to last year's numbers], but not a retraction or a collapse."

The year marked the nation's third largest for tech IPOs, Peterson added.

After Federal Reserve chairman Alan Greenspan uttered the words "irrational exuberance" to describe the market levels in December 1996, 1997 started with a sputter, according to Rob Keller, an underwriter at Hambrecht & Quist.

The Fed's comment and a raising of interest rates, coupled with poor market conditions and weak-performing IPOs, slowed down the reception for technology public offerings in the first few months of the year.

"There was the Wired fiasco in November '96 [ in which the publishing and digital media company withdrew its second attempt at a public offering]; Auto-By-Tel did not launch as expected in April; and Onsale (ONSL) was priced well below the target," said an underwriter who asked not to be named. These issues contributed to the sluggish start of 1997.

Disappointing earnings announcements also soured investors, said Peterson. By the end of May, tech IPOs numbered 56, compared with 114 during the same five-month period last year.

In June, the IPO market started to rebound, partly due to the anticipation surrounding the public offering of online bookseller Amazon.com (AMZN).

"Amazon.com's [IPO] was a big, seminal event among Internet companies," said one underwriter.

The Net book vendor, which launched its IPO in mid-May, priced its offering at $18 a share, far above its initial pricing range of $12 to $14 a share.

When the company went public, the first trade of the day jumped 30 percent above its initial $18 a price.

That performance was followed the next month with a sizable jump in tech IPOs. During the four-week span in June, 21 tech IPOs hit Wall Street. Great Plains Software (GPSI) was one of them.

The software maker, which originally set a pricing range of $10 to $12 a share, ended up pricing at $16 a share when it went public. On the first trade, investors had pushed the stock to $30.

Peterson said a few other events helped spur the June blip. "By then, the market had digested the news about earnings and performance of economy."

However, IPOs weren't able to sustain the June pace as the Asian market crisis seeped into the U.S. markets. "When the market catches a cold, tech stocks get pneumonia," Peterson remarked of the slowdown.

But despite the falloff from the June performance, the number of deals per month between August and November maintained a relatively steady pace, averaging 15 deals a month.

Although November racked up a few deals short of those generated in June, the average deal raised nearly twice the capital. November's deals averaged $76.4 million, whereas June's brought in $35.9 million.

Looking toward the new year, analysts say the economy is poised for a successful 1998 tech IPO market.

"I can't believe things are as fundamentally good as they really are. You always doubt the status quo, but there is good fundamental strength in the U.S. economy," said Hambrecht & Quist's Keller. "Asia is going to have an impact on tech sector, but short of what is going on in Asia, we have good growth and good earnings."

He added that investors often latch on to anything to sway their strategy, but with good economic growth and low inflation, the current climate is a prime environment for investors.

"Great companies will continue to get financed," he noted. "For the existing players, Asia will be a hiccup, but companies that have a technology or business application will be well-received."