IPO market keeps a wary eye on the Fed
Investment banks are rushing to get several initial public offerings launched early next week, as fears grow that the Federal Reserve could hike interest rates higher than expected.
Initial public offerings expected to grab investors' attention next week include DSL equipment maker Turnstone Systems, fiber-optics company IMPSAT Fiber Networks and business-to-business cattle site eMerge Interactive.
A sense of urgency in getting deals done was heightened after government reports released today showed fourth-quarter inflation grew faster than anticipated. That sent the markets plunging as investors feared the Federal Reserve will ratchet up short-term rates beyond the 0.25 percent that had been anticipated.
As a result, the Dow Jones industrial average shed 289.15, or 2.6 percent, to 10,738.87; the Nasdaq fell 152.83, or 3.8 percent, to 3,886.73; and the Standard & Poor's 500 Index lost 38.36, or 2.7 percent, to 1,360.20. The CNET technology index fell 78.80, or nearly 3 percent, to 2,785.11.
For the week, the Nasdaq sank 8.2 percent, the biggest weekly decline since August 1998.
The economic reports may give Federal Reserve chairman Alan Greenspan enough ammunition to raise rates 0.50 percent, said Jeff Hirschkorn, senior analyst with IPO.com.
"That may crimp the deals for smaller underwriters, but the larger bankers like Morgan Stanley will weather it," he noted.
Despite the turmoil in the markets, Turnstone is off to a strong start. The company recently bumped its pricing range up by a sizable 53 percent to $23 to $25 a share from $15 to $17. The DSL company hopes to raise up to $75 million, based on the high-end of its range and 3 million shares it will sell.
The company could follow the performance of Copper Mountain Networks, which made its debut last May. Copper Mountain priced at $21 and gained 226 percent its first day of trading, Hirschkorn said. The stock currently trades at about $56 a share.
Turnstone generated revenues of $12.5 million in the quarter ended Dec. 30, up from $9 million in the previous quarter. Profits reached $1 million in the fourth quarter.
The company began shipping its Copper CrossConnect CX100 in the first quarter last year and currently relies on a limited number of customers for its revenues.
Turnstone expects to price Monday and begin trading Tuesday under the ticker "TSTN." Goldman Sachs is the lead underwriter.
IMPSAT and eMerge also operate in hot sectors, Hirschkorn said.
IMPSAT is expected to sell 11.5 million shares at $13 to $15. Based on the high-end of the range, the company could raise as much as $172.5 million.
The company, which has more than 1,500 clients in the growing Latin America region, generated $167.2 million in revenues during the nine-months ended Sept. 30, compared with $149.9 million a year ago. Meanwhile, its loss widened to $101 million during the period from a loss of $23.3 million the prior year.
The company expects to price Monday and begin trading on Tuesday under the ticker "IMPT." Morgan Stanley is the lead underwriter.
eMerge Interactive operated a business-to-business site where cattle are sold and industry news is posted. The lead underwriter, Adams Harkness, is not a household name on Wall Street, but it specializes in commodities IPOs, Hirschkorn said.
eMerge could raise up to $96 million, based on the high-end of its $10 to $12 range and 8 million shares it will sell. eMerge plans to price on Tuesday and begin public trading Wednesday under the ticker "EMRG."
eMerge generated $18.3 million during the nine months ended Sept. 30, up from $1.1 million a year ago. The loss from continuing operations rose to $10.7 million in the period from $3.9 million a year earlier.