The Year in IPOs

For issuers, investors, and bankers alike, 1992 was a win-win-win deal.

By Bill Graham | 
 

The market for initial public offerings in 1992 might well have been the successful rendition of a highly touted late-1980s astrological flop. The so-called harmonic convergence was billed as a unique planetary alignment that would allow for an "unprecedented amount of energy to converge in one place and harmonize with itself," according to the guy who dreamed the whole thing up. But despite a lot of people holding hands and humming, the event was pretty much a bust.

Such wasn't the case in last year's IPO universe, which experienced a very harmonic and, oh, so rewarding alignment of market forces. The result was a stellar year in new stock offerings, as 598 corporations raised $39.4 billion, far eclipsing the record of $25.1 billion raised by 402 companies in 1991. Such financial entities as banks and investment funds filed nearly a quarter of 1992's offerings.

Nonfinancial issuers' sales averaged $202 million. Not that small businesses were shut out of the market. Forty-one companies reporting sales of less than $1 million raised a total of $518 million, an average of $12.3 million. Eight companies with no sales attracted an average of $9.8 million each.

The forces that converged to such galactic effect were a bull market for small-capitalization stocks, which began in early 1990, and low interest rates. High investor demand for small-cap IPOs met a solid supply of once-private companies that liked the market's rate-driven, soaring price-to-earnings ratios.

The first hint of an economic recovery in January 1992 produced a rally in cyclical stocks, making the market receptive to large industrial IPOs, more than 20 of which were reverse leveraged buyouts -- once-public companies that went public again, paid down debt that was piled on to take them private, and made tidy fortunes for the principals.

Biotechnology and health-care issues were hot in the first quarter, though they began to cool in the second, when it became a distinct possibility that Bill Clinton, with his campaign against high health-care and drug costs, might be elected president. No real matter. The IPO calendar was already jammed with companies in registration, which helped see the market through a summer lull -- if one can call $9.8 billion in new stock offerings a lull -- with such high-flying issues as CrossCom (#40) gaining 120% and coffee marketer Starbucks (#93) rising 117.6% by year's end.

Since small companies don't offer a lot of shares, demand for their stocks jacked up prices astronomically in the fourth quarter. Lone Star Steakhouse, one of 15 restaurant offerings, was the top-gaining IPO, selling at 165 times earnings and 457% higher than its issue price of 63/4.

The array of high-technology stocks that again gleamed brightly in 1992's constellation of IPOs came as no surprise to market observers. The emphasis on computer-networking issues was simply a reflection of what's been going on in their own offices. And changes in local statutes encouraged five gambling-related offerings, including Casino Magic, a bet that returned 360% before the new year.

Overall, 1992 saw new issues performing well. Standard & Poor's New Issues Index, which follows the first six months of each IPO's stock performance, was up 29.4%. But underwriter David DiPietro cautions, "It was a year you may not see again, in all those dimensions, for a long time.' That must be melancholy news to his employer, Alex. Brown & Sons, and other investment bankers, who last year raked in $2.4 billion in fees.

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This article is based in part on data prepared by Securities Data Co., in Newark, N.J.

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1992'S MOST ACTIVE MANAGERS

Underwriter No. of deals Total raised ($ millions) Average raised ($ millions)
1. Merrill Lynch 58 $7,888 $136
2. Morgan Stanley 30 3,840 128
3. Goldman, Sachs 25 3,769 151
4. Shearson Lehman Bros. 36 3,393 94
5. Prudential Securities 14 3,039 217
6. Alex. Brown & Sons 34 2,451 72
7. Paine Webber 25 1,975 79
8. Dean Witter 11 1,574 143
9. Smith Barney, Harris Upham 18 1,555 86
10. First Boston 22 1,413 64
Top 10 totals 273 $30,897
Totals for all IPOs 598 $39,426 n