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IPO VIEW - Economic uncertainty may crimp pipeline

Sunday February 15, 3:37 pm ET
By Steve James

NEW YORK, Feb 15 (Reuters) - Whether it's how long the war in Iraq will drag on to doubts about who will occupy the White House next year, a degree of uncertainty about the economy is also being felt in the market for initial public offerings.

That's why the pipeline for future IPOs may not be quite as strong as one would expect, given the recent signs of fiscal recovery, said Benjamin Howe, a managing partner of America's Growth Capital, a Boston investment firm that specializes in IPOs.

"There is definitely still pause over the economy, as well as the election and the Middle East crisis," he said.

"The pipeline looks strong, although I would have expected it even stronger with the success of recent IPOs. But it's still strong compared to a year ago."

Howe said 25 IPOs were filed in the third quarter of last year, 31 in the fourth quarter and 20 so far this quarter.

Actually, February has been on fire for IPOs, with at least 17 priced in the first two weeks. So it's no surprise the market would cool off in a week shortened by the President's Day holiday. Only one deal is on the calendar this week, plus another held over from last week.


"It's been a very strong two weeks across the board, with good after-market performance in the teens to 20 percent or more," Howe said. "There's a mix of biotechs and technology, but its coming from a bunch of industries, technology is not dominating."

John Fitzgibbon, an IPO analyst with, an online newsletter, said there was a healthy pipeline of deals despite this week's thin calendar for IPO pricings.

"The filing window has opened at the SEC (Securities and Exchange Commission ( News - Websites ) ) and there were about a dozen IPOs filed last week."

But Howe said investor uncertainty remains with the presidential elections nearing as well as concerns about the Middle East.

"People wonder whether (President) Bush has a susceptibility (for defeat) in the election," he said. "But even if there is a change and a Democrat becomes president, Bush has pulled out all the stops on the economy and we must pay the price down the road."

Low interest rates can only go up and if exchange rates stay at historic lows against the dollar, China and other countries will have to change their pricing, which would affect trade, Howe said.

Five IPOs were priced last week but one, biopharmaceutical firm Dynavax Technologies, did not get done and is listed as "day-to-day." The big winner was Atheros Communications (ATHR.), which rose 25 percent in its first day of trade.

Only one IPO is on the calendar for this week: Cherokee International Corp., which makes power supply products. But the company cut its planned initial public offering to 6.6 million shares from 7.7 million.

However, the Tustin, California-based company did not change the estimated IPO price of $12 to $14 a share.

Cherokee, which sells its products to the computing and storage and medical industrial markets, said it plans to list its shares on Nasdaq under the symbol "CHRK" (Nasdaq: CHRK - News ).

The underwriters, led by Credit Suisse First Boston, have an option to buy up to 990,000 additional shares from selling stockholders to cover over-allotments. The company said it will not receive any proceeds from any sale of stock by stockholders.


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