NYT DealBook, January 29, 2010, 4:10 pm — Updated: 4:10 pm -->
The I.P.O. pipeline in the United States is filling up as companies once afraid of braving the capital markets are now lining up to for initial public offerings. A fair number of these companies, especially in the financial industry, are looking to spin off businesses at lucrative prices.
The drought in I.P.O.’s reached its peak earlier last year during the financial crisis, with weeks and months going by without one offering hitting the market. Companies feared that the volatility and uncertainty in the financial markets meant that any offering, no matter how strong, would probably get hammered.
But by the fourth quarter, things were looking up. A total of 53 companies seeking to raise a collective $10.3 billion filed registration statements in the fourth quarter expressing their desire to go public, a two-year high, meeting pre-recession levels, according to Ernst & Young. And 32 companies hit the market in the fourth quarter, raising a sizable $17.4 billion, compared to just one company that went public in the fourth quarter of 2008, raising a tiny $144 million.
The upward trend does not seem to be a fluke, as Dealogic reported Friday that there were now 75 I.P.O.s in the pipeline looking to raise $13.6 billion. But what could be even more interesting is the number of companies getting ready to file.
“We have a pent-up demand to serve companies that are preparing for or are considering an I.P.O.,” Maria Pinelli, the Americans director of Ernst & Young’s strategic growth markets division, told DealBook.
Currently, technology companies are leading the I.P.O. market, but financial services companies could be a major contributor to future offerings, Ms. Pinelli said. While she would not talk specifically about any one company her firm is working with, Ms. Pinelli did say that many large companies were considering spin-offs of strong parts of their businesses to take to the stock market over the next two quarters.
Large financial firms may see spinning off a business unit as a better way to unlock its value than selling it to rival at a reduced price. Both Citigroup and the American International Group have said that they want to sell parts of their businesses to raise money to pay off government bailout money, but that they are waiting to do so when the time was right. That time may be coming soon via the stock market.
– Cyrus Sanati