IPOs Ready To Make A Comeback


    GRAND RAPIDS — Initial Public Offerings in Michigan have been few and far between, until recently.

    When Asset Acceptance Capital Corp. of Warren and TRW Automotive Holdings Corp. of Livonia both went public in early February, their filings marked the first offerings in the state in three years.

    Since those two IPOs, TriMas Corp. of Bloomfield Hills announced its public intentions with the Securities and Exchange Commission late last month. So, three Michigan firms have gone the IPO route in less than two months.

    But why so few for so long? The big-picture reason is market conditions.

    “Overall, the IPO market has been down for the past couple of years, as was the market, and when the market is down, there is much less IPO activity,” said Jeff Lambert, principal of Lambert, Edwards & Associates, which directed the investor relations aspect of the Asset Acceptance IPO.

    “When the market is going down, there is less investor interest and it becomes a vicious circle,” he added.

    But Lambert said other factors have also contributed to the decline in IPOs, including more scrutiny placed on public companies by governing agencies in the wake of the corporate scandals that unfolded a few years ago.

    He also said increased activism from shareholders has had an impact on the IPO market, because shareholders have exercised their rights more often.

    Add to those two issues the fact that the cost to become a public firm has significantly risen in recent years, and Lambert said it’s easier to understand why companies have been more reluctant to take that public step.

    “So what you’re seeing is (that) a hesitation on companies going public, combined with the market downturn through the beginning of last year, affected the IPO market,” he said.

    A secondary, but specific, factor affecting IPOs in Michigan is that the state’s economy is still largely based in manufacturing, and Lambert pointed out that sector hasn’t been a “hot” one for public offerings.

    Even though two of the three most recent Michigan IPOs came from manufacturing firms — TRW and TriMas — recent data backs his claim.

    The top six industries that held IPO pricings last quarter were pharmaceuticals, insurance, transportation, real estate, computer services and computer software.

    Those half-dozen were 55 percent of all public offerings in the last quarter of 2003.

    In contrast, makers of electronics, consumer products and automotive parts were responsible for 12 percent of the pricings then, according to Hoovers Online Service, and the electronics sector had half of those.

    At the same time, Lambert expects that more IPOs will come from companies that make things and that there will be more public offerings, in general, to come in the future.

    Again, the most recent data backs his claim. The total number of IPO pricings rose by 113 percent in the last quarter of 2003 from the same quarter in 2002. (See related chart.)

    “I think we will see more IPOs,” he said.

    “What happens in a downturn of IPOs is the investors in companies — the private equity, the venture capital firms — their desire for liquidity doesn’t go away; it’s merely delayed,” said Lambert

    The SEC has an IPO backlog of 82 companies hoping to raise $12 billion.

    “So the companies that didn’t go public in the last three years would be looking for a public-market exit or liquidity in the future,” Lambert said.

    “So, the opportunities aren’t gone forever, these are just delayed for future years.”

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