After a tough summer for US initial public offerings, a smattering of recent successes and an estimated $24 billion backlog of deals have led to some optimism about a recovery in the IPO market later this year.
The IPO market enjoyed a good start to 2006, but then took a hit when investors' tolerance for risk evaporated in May along with hopes that the Federal Reserve would stop raising interest rates, thereby easing companies' borrowing costs.
But both a recent drop in oil prices and speculation that the Federal Reserve Board's recent pause in raising rates could last have some investors hoping for a turnaround this year.
"All I do know is that there is still a lot of cash out there on the buy side and that cash eventually has to go to work somewhere," said Barry O'Brien, managing director-head of the Americas Equity Syndicate at UBS, who is in charge of placing shares in stock offerings, including IPOs.
Upon returning from the Labour Day holiday at the start of September, underwriters will mull over a six-month backlog of more than 150 IPOs registered with the US Securities and Exchange Commission, an increase of about 39 percent over the same period in 2005, according to data tracker Dealogic.
The deals could be worth some $24 billion, Dealogic said. Among registered offerings in the pipeline are three potentially worth $1 billion or more - car rental giant Hertz Global Holdings Inc, prescription drug maker Warner Chilcott Ltd and real estate investment trust Douglas Emmett Inc - and five which could raise $500 million or more.
Through the first half of August alone, 21 companies filed for IPOs, which could lead to a huge November, said Ben Holmes, publisher of Morningnotes.com, an independent research firm in Boulder, Colorado.
Despite the supply, O'Brien said valuations will be crucial to selling shares to buyers who have become "increasingly selective" due to difficulties so far this year, which has seen high-profile IPOs fall sharply from their offer prices and some issues withdrawn. So far this year, 44 companies have withdrawn or postponed IPOs, a 19 percent rise on last year, according to Dealogic.
Still, a trio of IPOs that opened successfully in August, including Evercore Partners Inc, have shown that the right kind of company can still pull off a successful flotation.
Evercore rose 18 percent in its market debut, breaking a string of disappointing investment bank offerings. Aircraft leasing company Aircastle Ltd has climbed 20 percent since its opening and InnerWorkings Inc closed on Friday 15 percent above its offering price.
"I think we turned the corner with Evercore," Holmes said. "We got past these deals that were difficult to price and I'm pretty positive going forward."
Few sector trends have emerged among this year's IPOs. For instance, three of the 10 best performing US IPOs were technology or telecom companies, but four of the 10 worst performers were, including Vonage Holdings Corp, which traded Friday more than 61 percent below its offering price.
The best performing IPO in 2006 to date was Chipotle Mexican Grill Inc. The McDonald's Corp spin-off rose 100 percent on its first day in January and was up 136 percent from its offering price on Friday.
However, other restaurant stocks have not been able to match Chipotle's success. Canadian coffee and doughnut chain Tim Hortons Inc has handed back most of its early gains and Burger King Holdings Inc trades 20 percent below its offering price of $17.
"You can't just go out and have a good first day because you are in a particular industry," said Timothy Pollock, a professor of business at Penn State University. "Investors are not rolling the dice quite as much as they may have in the past.
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