Tags: Finance, Quarter Growth, Solar Energy

IPOs Soar in Third Quarter, Fueled by Solar, Software and Finance Deals

By , Money Morning •

From Staff Reports

Two companies - one in finance and the other in software - fueled a huge surge in the value of new stock offerings in the third quarter, according to a new report by data-tracker Dealogic.

Companies raised more than $12.5 billion via initial public offerings (IPOs) in the U.S. financial markets during the third quarter. That's 67% more than the $7.5 billion raised in the third quarter a year ago, Dealogic said. The third quarter is typically the slowest of the four quarters because of a summer lull from the middle of August to the middle of September.

But there was a wild card this year - or, rather, two of them - as in $4 billion worth of offerings from U.S. brokerage firm M.F. Global Ltd. (MF) and software maker VMware Inc. (VMW).

Although the dollar value of the IPOs soared dramatically, the volume of offerings only rose modestly, with 43 new issues coming to the market in this year's third quarter, up from 40 a year ago.

That huge dollar jump despite the moderate increase in the number of deals demonstrates "how a couple of large issues can dominate the sector," Francis Gaskins, president of IPO research firm IPOdesktop.com, told Reuters.

Finance companies raised the most cash, with nine IPOs raking in proceeds of $4.3 billion during the quarter.

MF Global, spun off by hedge fund firm Man Group PLC raised $2.9 billion in July in the second-largest IPO in 2007, after private equity giant Blackstone Group's (BX) $4.7 billion IPO in June, according to Dealogic's data.

Software and Solar Energy

But where finance deals raised the most cash, technology deals were the most plentiful. There were 12 new issues in the sector, raising $2.5 billion.
VMware, the year's fifth-largest IPO - and a deal that's been closely followed by both Money Morning and its sister publication, The Money Map Report - led the charge, raising $1.1 billion with a sensationally performing IPO.

VMware caters to a new sector known as "computer virtualization." One use of this new technology actually solves a problem that has confounded computer users since the dawn of the Mac vs. DOS debate. On a computer network, the software enables a computer to reconfigure itself to run whatever operating system is needed at a particular moment. For instance, a server might be running Windows N/T one moment, Linux the next, and Apple the moment after that. It makes computers and networks more efficient, and saves money, too, since a company doesn't have to operate different networks for each computer language it utilizes.

VMware is expected to reap $1 billion in revenue this year. And the overall computer virtualization market is projected to double and reach $12 billion in revenue in five years.

The software maker has also posted robust gains since its IPO. Its stock closed on Thursday at $85 a share, up 193% from its IPO price of $29 per share. That stellar return ranks VMware as the second-best performing IPO stock this year, trailing only JA Solar Holdings Ltd. (JASO), a China-based solar-energy-technology company whose shares have more than quadrupled in value since its Feb. IPO. In fact, rival Chinese solar companies LDK Solar Co Ltd (LDK) and Yingli Green Energy Holding Co Ltd (YGE), were the No. 3 and No. 4 best-performing IPO stocks so far this year. [To see related story on China-based solar-energy-technology companies that have gone public this year, please click here].

Lululemon Athletica Inc (LULU), a Canadian retailer of yoga apparel, rounded on the top-five best-performing IOPS of 2007.

Concerns about "global warming" - caused by a big spike in the use of fossil fuels and by the scorching growth rate in China - has caused a big uptick in interest in alternative energy sources. And it's not just the environmental impact that concerns investors and consumers alike - the spiraling costs are also a huge concern. That is part of what helped drive the widespread development of the China-based solar-energy companies - more than a half dozen of them this year alone.

IPO Market Rises 40%

Through the first three quarters of 2007, IPOs in the U.S. market raised $43.5 billion - nearly 40% more than the $31.2 billion raised during the first nine months of last year. The number of IPOs rose 21%, from 156 in the first nine months of 2006 to 188 in the first three quarters of 2007. A fairly full pipeline has boosted optimism for the rest of this year: 171 companies have filed for IPOs with securities regulators, a set of deals that could raise $35 billion, if they come to fruition.

Said IPOdesktop's Gaskins: "The Dow is up, Nasdaq is up: The appetite is there for companies that have a solid income statement. But people are looking more critically at income statements now, as a ripple effect" from the subprime-mortgage crisis and the evolving worldwide credit crunch.

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