An IPO Rebound: After a Long Slump, Firms with Solid Track Records Are Finding Buyers for Their Stock
Stone, Brad, Newsweek
Byline: Brad Stone
From April 2000 until very recently, a magnum of Perrier Jouet champagne sat in Patrick Lo's desk, awaiting the day that his Silicon Valley company, Netgear, would go public. He bought the bubbly when the firm, which makes PC-networking equipment for homes and small businesses, filed to sell stock to outside investors for the first time. Even if Netgear were barely profitable, it seemed like a can't-miss deal: after all, Wall Street was showering unconditional love on all things tech. But then the NASDAQ tanked, Wall Street's corruption scandals tainted the entire process of public offerings and Netgear had to shelve its IPO. It was three years before the market recovered sufficiently to allow Lo to try again. On July 31, Netgear raised a cool $98 million. "We all watched the NASDAQ open on a big-screen TV in our office," he says. "Then we pulled the champagne from my desk, shared it and went back to work."
After three years of what seemed like Prohibition in the IPO market, the corks are finally popping again. Seventeen companies filed to go public in August, the highest since May 2002, and 40 are now in the pipeline, the most all year, according to Thomson Financial. But these are different from the rockets that shot up and quickly crashed during the boom. Today's new issues are more of a slow burn--Netgear is up about $4 since its debut at $14--and they are typically proven, profitable companies that managed to survive a wretched stretch in the economy. "We have the best-quality deals coming to market that we've seen in many years," says David Menlow of the research firm IPOFinancial.com. "The bar has been raised high by investors, and a few companies are sneaking over it."
This is good news not just for entrepreneurs and investors but also for an economy that finally seems to be staggering to its feet. IPOs are a crucial part of the country's innovation engine, providing capital to promising companies that can then plow it into research, products--and new hires. In the late '90s, that system was badly hijacked by an Internet hysteria that allowed companies with slapdash business plans and no track record to go public. For example, Garden.com, a cash-hemorrhaging online retailer, debuted in 1999 at $12 a share and a year later was worth less than dirt. Investigations by the Securities and Exchange Commission and state attorneys general into biased Wall Street research also contributed to a freeze in new offerings.
But even in today's warm-er environment, going public is still more difficult than it has been in years. Companies that launched IPOs during the boom found they could easily entice investors just by showing rapid growth in top-line revenue. …