Markets & Finance

Amid Volatility, IPOs Hold Steady


Successful debuts from Dolan Media and Genpact Thursday signal good demand, though additional market weakness could scuttle future deals

Though the late July stock sell-off gave it a scare, the market for initial public offerings, or IPO, is holding up. At least so far.

Two companies had good opening days on Thursday. Dolan Media (DM), a publisher of business information, premiered on the stock market priced at $14.50. It ended the trading session at $17.72, a 22% swing higher.

Genpact Limited (G), a business process outsourcer, was priced at $14 and ended the day at $16.75, up 20%.

That's not to say the IPO market hasn't felt the effects of last week's plunge in stocks.

"IPOs still are considered a luxury," says David Menlow, president of IPOFinancial.com. "If investors are worried about their core positions, they're not going to venture out into the IPO market and be aggressive."

To adjust, underwriters are cutting their offering prices. Genpact, which separated from GE Capital in 2005, had an initial price range of $16 to $18. But underwriters set the price at $14 to attract buyers.

"They've had to tweak the deals in order to get them to work," says Scott Sweet, senior managing partner of IPO Boutique. One exception is Dolan Media, which prospered despite being priced right in the middle of its expected range.

The stock market, which hit records just before plunging last week, has coaxed more and more firms to offer stock for the first time.

This year was on pace for more IPO deals than in any year since 2000, according to data from Dealogic. Through July, 166 stocks, with a market value of $37.15 billion, held IPOs in 2007, up from 132 at this point in 2006.

Last year, there were a total of 250 IPOs in the U.S., up from 240 in 2005, according to Dealogic. There were 431 IPO offerings in 2000, before the market slowed way down from 2001 through 2003.

Will the quick pace of the last few years continue? It depends on how low stocks go.

The IPO calendar remains busy, with few cancellations or delays so far. "Next week is packed with quality deals," Sweet says. That includes the eagerly anticipated software firm VMware.

Sweet doesn't believe next week's IPOs will need to cut prices to attract investors. "The IPO market can often operate on its own," independent of broader stock market trends, he says. However, he expects more price cuts and cancellations if the market falters "for a lengthy period."

Menlow says fewer firms might file for initial public offerings as the year goes on. The IPO market, thus, might see more high-quality offerings as the weaker deals fall by the wayside. It's no longer assumed "that any IPO that comes through the gate is going to be a success," he says.

Steverman is a reporter for BusinessWeek's Investing channel.

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