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IPO market: one for the record books

The only thing more stunning than the performance of the Nasdaq in 1999 is the surreal market for initial public offerings.

The only thing more stunning than the performance of the Nasdaq in 1999 was the surreal market for initial public offerings.

Across the board, last year was one for the record books as investors had an insatiable appetite for new stocks.

Of the 10 largest first-day gains ever recorded by an IPO, IPO mania nine occurred last year (the tenth took place in the waning months of 1998).

Leading the charge were tech stocks across a spectrum of market sectors.

"1999 was the first pure year when there were more tech deals than non-tech deals," said Richard Peterson, an IPO analyst with Thomson Financial Securities Data.

Technology-related IPOs raised $39.6 billion in 370 deals last year, while non-tech deals raised $29.6 billion with 168 IPOs.

Meanwhile, a stunning 75 percent of the deals were still trading above their offering prices when the year ended--no easy feat for an IPO.

"Business could never be better. Only 25 percent of all IPOs were trading under their offer price. That's why everyone thought it was a guaranteed win with an IPO," Peterson said.

The year was also marked with a shift in attitude over what constitutes an acceptable IPO. Investors once considered double-digit first-day gains to be a victory. Last year such performances were often considered disappointing, Peterson said.

CNET TV: IPO Year in review
CNET TV: IPO Year in review

12/18/99
But although the dot.com frenzy soaked up the limelight and investors' attention during the early part of last year, a diversification in tech industries emerged in the public markets midway through the year.

"We also saw a lot of infrastructure, networking and foreign ISPs take center stage," said Jeff Hirschkorn, senior analyst with IPO.com. Indeed, the list of top first-day gainers is dominated by Linux-related companies and infrastructure firms.

Feeling left out of the party, several technology giants spun off portions of their operations last year.

Database maker Oracle spun off set-top box software maker Liberate last July. The IPO priced at $16, but today the stock trades at nearly 200.

Microsoft debuted its first spinoff in November with online travel site Expedia. The shares were priced at $14 and it currently trades at nearly 40. Meanwhile, Hewlett-Packard's test and measurement equipment maker Agilent priced at $30, but is now trading at more than 60.

Even United Parcel Service got in on the action. The shipping company raised $5.47 billion in its IPO, setting a new record for U.S. IPOs. One reason: many investors valued UPS as a technology play because many e-commerce sites rely on it to deliver products to customers.

This year, investors will have a plethora of IPOs to choose from.

Taking stock of 1999 A large number of dot-com deals are in the pipeline, as are IPOs for Linux and wireless companies. More foreign IPOs also are on the way.

About 100 companies filed for IPOs in October that have yet to debut, said Peterson.

Of that group, two-thirds are tech companies. Internet-related deals, meanwhile, are expected to represent 31 percent of those deals, down from 40 percent for 1999.

AltaVista is the largest Net deal on the schedule; the Net search company plans to raise up to $300 million, based on its registration filing fee.

But industry analysts say the one to watch is AT&T's planned spinoff of its wireless group. That deal, which may be filed soon with the Securities and Exchange Commission, may raise up to $10 billion, surpassing UPS' record.

"Wireless is hot," said Hirschkorn, adding that investors are also expected to favor some sectors that were red hot last year.

"We'll probably see some moon shots with business-to-business deals, infrastructure deals will continue to be hot and Linux will also be hot with a number of companies expected to come out this year," he said.

Linux companies may hope to ride the coattails of VA Linux, which set a record last year for the largest first-day gain of any IPO. VA's shares soared 698 percent on its debut.

Based on last year's performance, Peterson offered IPO investors this advice heading for the 21st century: "Brace yourself."