Newspaper article The Florida Times Union

How Public Are Initial Offerings?

Newspaper article The Florida Times Union

How Public Are Initial Offerings?

Article excerpt

Unless you've spent the last two years in Tierra del Fuego,

you've no doubt heard many enticing tales about huge profits

being made in the stock market.

And some of the biggest killings have come from investing in

the hundreds of companies issuing stock to the public for the

first time.

Jacksonville has its all-star roster: AccuStaff, Physician

Sales & Service and Orthodontic Centers of America.

Nationwide, Internet stocks such as Yahoo and Netscape soared

in the days following their initial sale.

Investing in the initial public offering market isn't for the

fainthearted, however.

And the deck is stacked against most small investors.

"Right now the system is horribly skewed against the small

investor," says Gerri Detweiler, policy director of the National

Council of Individual Investors, a Washington, D.C.-based

advocacy group. "It's a tremendous problem."

For those average investors intent on investing in new-issue

stocks, there are some ways to work their way through the maze.

But they need to be cautious.

WHAT'S AN IPO?

An initial public offering, or IPO, is when a company sells an

ownership stake to the public, typically in the form of common

stock, for the first time.

Selling shares to the public is cheaper than borrowing money

from a bank or other lender. Instead of having to repay a loan,

however, the existing shareholders give up some of the ownership

of the company. Theoretically, the new shareholders will have a

vote in the company's affairs.

Companies "go public" for a variety of reasons. They do it for

working capital, to pay for acquisitions or to pay off debt. Some

companies sell stock so the existing owners can realize a

financial gain from their holdings.

Still, other companies sell stock as a last resort, a way of

warding off financial collapse.

For those thinking about investing in an IPO, it's important

to know something about the company's past performance and what

it intends to do with the proceeds of the public offering. The

answers can be found in a prospectus, the document a company

going public is required to distribute to the investing public

under federal securities laws.

"When the environment is good, everybody wants in," says Barry

Thors, vice president of Allen C. Ewing & Co., a Jacksonville-

based investment firm, and a veteran participant in the IPO market.

In the last two years, investors have been snapping up shares

of IPOs at a dizzying pace.

The temptation is understandable. Some of the new offerings,

especially those companies involved in the Internet such as Yahoo

and Netscape, have doubled and tripled in price on the first day

of trading.

Excel Communications Inc., a Dallas-based marketer of long

distance telephone service, rocketed from $15 to $30 in its first

day of trading as investors, mostly the company's independent

representatives, clamored for shares.

It's been an incredible six months. Through June 30, a record

422 companies had issued $26.6 billion in new stock, according to

Investment Dealers Digest. By comparison, 216 companies issued

$10.7 billion in new securities in the first six months of 1995.

"I have not seen as receptive a market as this has been in my

career," Thors says. "This has been a phenomenal market."

The demand has been fueled mostly by record levels of money

flowing into mutual funds and pension funds. An estimated 40

million Americans own shares in mutual funds, up from 20 million

in 1985, according to the Investment Company Institute. …

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