IPOs Surging Already in '06

The U.S. initial public offering market is off to a strong start in 2006, running almost 20 percent ahead of last year's pace and likely setting the stage for a flood of additional offerings, analysts said.

Burger King Holdings Inc. may well be the first of many companies looking to ride the market's momentum. The hamburger chain disclosed plans for an IPO on Wednesday, less than a week after the first-day surge of initial offering Chipotle Mexican Grill Inc. (CMG).

"Far more people follow than lead," said Benjamin Howe, managing partner at Boston-based investment bank America's Growth Capital "The leaders have stepped out there and done successful transactions, and now the followers are going to jump in the game."

As of Friday, 24 U.S. IPOs had raised $3.86 billion in 2006, 19.9 percent more in value than the $3.22 billion that 16 companies raised in the comparable 2005 period, according to data from Dealogic.

Chipotle stands out after doubling in value during its first day of trading and maintaining that level. The shares traded at $45.15 on Friday, more than double the $22 offer price.

Other IPOs with solid performances so far this year include investment bank Thomas Weisel Partners Group Inc. (TWPG), train car manufacturer American Railcar Industries Inc. (ARII), and biopharmaceutical company Altus Pharmaceuticals Inc. (ALTU), all gaining more than 30 percent from their IPO prices.

"What's notable, just looking at the list, is the complete diversity in the names," said Ben Holmes, publisher of Morningnotes.com, an independent research firm based in Boulder, Colorado. "We've got the whole range."


Analysts said the strong IPO pace would likely encourage quick action on the part of companies that have already declared their plans to go public, such as No. 2 credit card association MasterCard Inc., which aims to raise up to $2.45 billion.

It could also encourage private-equity investors to sell off more of their corporate holdings.

"It is going to create a more fertile environment for the venture capital deals and the private equity deals," said David Menlow, president of IPOFinancial.com, an independent research firm based in Millburn, New Jersey.

Burger King, for instance, is currently owned by a private equity group that includes Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners, a unit of Goldman Sachs Group Inc. (GS)

Texas Pacific also controls clothing retailer J. Crew Group Inc., which plans to go public early this year.

Menlow noted that investors evaluating IPOs of companies that are being spun out by private equity firms should pay close attention to those firms' debt levels, since heavy debt can crimp performance.

"Just because a company has the capacity to take on debt does not mean that this is a perfunctory part of coming public," Menlow said. "I just don't want to see all these debt-laden companies come out with money going right into the pockets of the private-equity firms, rather than for the benefit of the issuing company."

A generally strong U.S. equity market has smoothed the way for many of the year's IPOs, analysts said. The broad Standard & Poor's 500 index has gained 1.5 percent in value since the start of January.

Concerns that the U.S. real estate market has peaked have also helped to steer investors toward IPOs, Holmes said.

"What's kept a lot of people out of the stock market, and as a result the IPO market, is real estate. Real estate has been a hotter hand," Holmes said. "Now that the real estate thing is played out, people are going to be looking for those short-term opportunities, and IPOs fall right into that category."