It’s looking like 2005 could be another decent year for initial public offerings.
Solid returns for companies that went public last year and a recovering economy have the market poised to at least equal 2004’s results.
“Generally speaking, judging from the Q3 and Q4 trends, the market is getting stronger,” said Murray Rudin, an Irvine-based partner of Los Angeles private equity investor Riordan, Lewis & Haden. “There’s some evidence in certain technology niches, there may even be some froth returning,that is a certain amount of buzz and frenzy.”
Orange County posted a modest boost in offerings last year with five,versus just one a year earlier. The national scene saw offering activity surge to 216 debuts, compared to 68 a year earlier, according to market tracker Renaissance Capital LLC.
Even so, no one expects a return to 1999, when OC saw 14 offerings and the U.S. recorded 486.
In fact, there’s just one local offering in the works: Newport Beach-based Jazz Semi-
conductor Inc., and that one’s been looming for a year.
But interest in venture-backed startups is a good sign, observers said.
“2004 proved to be an exceptional year in the public equity markets as indicated by the substantial increase in the number of venture-backed IPOs,” said Sandra Ribeiro, Research Director of Thomson Venture Economics.
Venture Economics said 93 companies that had venture funding had stock offerings last year. They raised $11 billion, versus 29 companies that raised $2 billion in 2003.
Returns were solid. Shares of companies that went public in the third quarter posted a 12.9% return, according to Renaissance. That beat the 3.3% gain from 2003’s third-quarter offerings and an 8% loss a year earlier.
Interest in small-cap companies could fuel more offerings, said Byron Roth, chief executive of Newport Beach-based Roth Capital Partners LLC.
“It’s back in vogue to find small companies that few people know about,” Roth said. “It used to be that if you weren’t a large-cap company, you wouldn’t get followed.”
Roth said market tracker Russell’s Micro Cap index, which it plans to launch in June, is an indication of the interest in small companies.
Roth Capital was the underwriter of one of OC’s hottest public offerings last year,Laguna Hills-based Interchange Corp., which runs a paid Internet search service.
Interchange shares soared from a first-day close of $7.4 to more than $30 in the weeks following its October offering. They’ve since settled at about $17 at recent check.
So who’s ripe for an offering in OC?
Jazz still tops the list.
The chipmaker was spun off by Newport Beach-based Conexant Systems Inc. in 2002. It’s owned by Washington, D.C.-based The Carlyle Group, Greensboro, N.C.-based RF Micro Devices Inc. and Conexant, among others.
The company filed to raise as much as $150 million last January, but 2004 saw no movement on the offering.
One factor that likely shelved the offering last year: slowing business at key customers such as Conexant and Newport Beach-based Mindspeed Technologies Inc., another Conexant spinoff.
Jazz hopes to ride an industry trend of outsourcing chip production since plants require big investment to maintain equipment, update processes and keep them running at capacity.
Jazz bills its Newport Beach facility as state-of-the-art. The plant can make 20,000 chips a month, can produce test versions of the industry’s smallest chips and features 100,000 square feet of clean-room space.
At least one venture-backed startup could eye the public markets.
Irvine-based Avamar Technologies Inc., which the Business Journal picked last year as a candidate to go public, still is on the vine.
The company closed a $15 million funding round last year, bringing its total funding to $50 million. Avamar makes software that lets companies easily back up large amounts of data without tying up the pipes of storage networks. The company says its software is a cheaper, more efficient way for banks, government agencies and others to backup data.
Tempting Targets
Investment bankers likely drool at the prospects of taking public some of the county’s biggest private companies.
Last year the No. 13 OC private company by sales, Sunstone Hotel Investors LLC in San Clemente, raised $413 million in a blockbuster stock debut.
But there’s little reason to think others might take the public plunge. The biggest private company, Pacific Life Insurance Co. in Newport Beach, isn’t likely to file for a stock offering.
The insurer is owned by its policy holders, making an offering a potentially tough sell for management that would be interested in going that route to raise money.
Golden State Foods Corp. might be a better candidate. Last year the huge food supplier was bought in a management-led buyout. Brentwood, Mo.-based Wetterau Associates now owns a majority stake in the county’s second-biggest private company.
Wetterau, an investment firm, could one day look at an offering to cash out its stake.
