On the Comeback Trail

When IPOs were trading at nosebleed valuations, everyone wanted to buy them.
The Greater Fool Theory was very much in force. Somehow, there would be
someone on the other end of the transaction willing to buy your shares at a
higher price.

It was fun while it lasted. But of course, in light of Greenspan’s tight
monetary policy, it came to an abrupt end in 2000.

Of course, now no one wants to buy IPOs. Even great companies — those with
profits and great futures — have had many troubles finding success in the
IPO market.

However, despite this, the IPO market in 2000 was still vigorous. In all,
there were 417 IPOs, in which a staggering $92.8 billion was raised. Last
year, there were 511 IPOs with $74.1 billion raised.

But the collapse in Nasdaq during the fourth quarter was unbearable. A mere
30 percent of all IPOs for 2000 are trading above their offering prices.
About 7 percent of all deals are trading below $1 per share. And, yes, most
of these are Internet companies. Several even liquidated their operations,
such as Pets.com.

True, investors are now much more selective. They want to see a clear
business model and profitability. But interestingly enough, investors have
not shied away from biotech and alternative energy IPOs. Of course, many of
these companies are in the developmental stage and perhaps may never make
any money. So, be wary.

The IPO market for 2001 will definitely have a slow start. There are only
two deals planned for January so far.

Most likely, it will take until summer for the IPO market to gain momentum.
By that time, Greenspan will have likely reduced interest rates and there
will have been a rally in Nasdaq. More importantly, whenever the IPO market
returns from a sharp downturn, the companies are typically high quality

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