Business Blog: Hoover’s Business Insight Zone

On Friday I mentioned my appearance on Bloomberg TV, in which I discussed the IPO market for the first quarter of 2008, and where I think the IPO market may be headed for the rest of the year. The Bloomberg host seemed disappointed that I wasn’t more sanguine, but right now I just don’t see much reason for optimism about the IPO environment.

Reasons Not to Be Optimistic about IPOs:

>> We’ve been seeing few new IPO filings from week to week, and there’s a large backlog of filings from earlier quarters for companies that have either withdrawn or indefinitely postponed their IPO plans. So even without any prognostication, we can conclude that potential IPO companies and their financial advisers are leery of going forward with these plans.

>> In general, unless you have a history and brand position like Visa’s or Google’s, you want Read more

If you have access to Bloomberg TV, you can see me talking about the IPO market around 9:40 Central time this morning. I’ll be drawing heavily from the Hoover’s IPO Scorecard we issued last week.

Wish me luck!

UPDATE, after the fact: The spot went pretty well, I thought, although it seems that I’m much more bearish on prospects for the IPO market than Monica Bertran is.

Haven’t been able to find online video of the spot so far, but I’ll post it if I do.

It was the best of times (for Visa) and the worst of times (for the IPO market as a whole). Get all the details from our IPO Scorecard. Be sure to check out the different summaries, too:

• Best/Worst Returns
• Biggest First Days
• Happy CEOs
• Money Left on the Table

Feel free to comment on individual IPOs, the Scorecard, or the market as a whole (hole?) here.

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(Photo by jhritz.)

Well, Visa was certainly everywhere investors wanted to be today. The credit-card outfit rode its world-famous name brand — and a strong afternoon rally from financial stocks — to a $17.9 billion IPO, the largest in US market history.

Adding to the fun were strong financial results from powerhouse Goldman Sachs and from Lehman Brothers, which dispelled liquidity concerns to see its shares rise more than 40%. The Fed joined in with a hefty 0.75% rate cut, and even the punch-drunk dollar surged against the yen.

So, jollity all around, yes? Err . . . no. Let’s start with the IPO market picture and move from there:

• As I’ve said before, these days the IPO market isn’t set by one company, especially when that company is a household name like Visa. Google was able to bring forth its monster IPO in the tepid market of 2004 . . . because it was Google. The same applies here.
• The Fed did what it did because its recent efforts to boost liquidity haven’t been enough to stem talk of a recession.
• The results at Goldman and Lehman are certainly nice, but they’re not nice enough to wipe away the fresh memory of the humiliating collapse of Bear Stearns.

So, to recap: great day on Wall Street today . . . future looks bright for Visa (and Goldman and Lehman) . . . but premature to talk about the financial markets as having emerged from the storm yet. I’d say the whole economy might want to keep the hatches battened down, eh?

Somewhere I dug up this story, published a couple of months back by MarketWatch, about the history of the IPO market during the past decade. Whether you were embroiled in the markets at the time or not, it’s a useful reminder of what happened and what it meant.

From Netscape to Google
The hottest of hot stocks — then and now

Particularly worth noting: the talk about the “story stocks” that started with Netscape and made IPO winners out of a motley band of companies including VA Linux Systems and TheGlobe.com.

Good speakers and writers have long known that human audiences respond much better to narrative than to analysis. Sure, we train ourselves to look at the facts, but our brains just love a good story. This helps to explain why so many smart investors (and many, many others who jumped on the IPO-investment bandwagon) went so far off the reservation in terms of the valuations they were willing to put on unproven companies.

It’s worth remembering the heady days of the dot-com boom, if only as an ongoing corrective to the temptation to invest hopes and dreams — a good story — into IPO offerings that can’t really support that weight from a cold, calculating business perspective.

NetSuite is looking good so far in its public debut. Soon we’ll be rolling out our year-end IPO Scorecard for your delectation, which will give me occasion to talk more about the IPO market. (Previous IPO Scorecards here.)

For the moment, though, here’s a crack at my basic philosophy about IPOs:

• Insofar as the IPO market is one slice of the overall financial markets, it makes sense to ask questions like “How’s the IPO market doing?” Because of course the financial climate makes it easier or harder for a given company to go public at a given time.
• Supposed bellwethers of the IPO market often aren’t very good in fulfilling the bellwether’s prime function — i.e., telling you where the overall market is headed. Just like a great musician could shine even in a lousy band, or a great athlete could shine on a weak team (case in point), a good company can shine even in a bad market.
• Many supposed bellwethers are, in actuality, “categories of one” — or at least members of very small clubs. So Blackstone’s mid-2007 IPO was far from indicative of the overall market for IPOs, just as Visa’s IPO (slated for early 2008) won’t be a bellwether for credit cards or financial stocks or whatever. Why? Because we’re not talking about Random Company X; we’re talking about Visa.

I try to keep these things in mind whenever I hear somebody talk about Company X being “the next Google” of the IPO world. There won’t be a “next Google.” Google itself wasn’t a “next Netscape,” because conditions changed so much between those two IPOs. Blockbuster offerings like those are often sui generis — they just are what they are, beyond any categorization.

The larger point: well-grounded companies (like, apparently, NetSuite within its particular niche) can make their own weather. So even when the broader IPO market is weaker — as it is now — it can still be a good time for the right company to go public.

All pause for a moment of Crocodile Dundee homage . . .

Okay, now to the business at hand: if you’re a fan of big IPO — and who isn’t? — how does ten billion dollars strike you? As you’ll see on our IPO Filings page That’s the round number that Visa has put on its proposed initial public offering, which is likely to happen early next year. Makes Blackstone’s mere $4 billion IPO from earlier this year seem pale by comparison.

Well, who cares what I think? More to the point, Blackstone told you so. Back in June, when the private equity titan made its IPO, I said on CNBC that the stock was way too expensive because it had three premiums built into it:

1. The premium that comes with any non-horrible stock in a sky-high market. This I can live with.
2. The premium that comes with any ultrasexy IPO. This I wouldn’t want to pay.*
3. The Steve Schwarzman Premium. Schwarzman is one of the world’s very, very best appraisers of the market value of assets. He’s crazy-good at this, and he has tons of experience at it. He does not sell any asset he holds at less than the best premium he thinks he can get. In June I made the very simple assumption that he thought it was the best possible time to sell 10% of Blackstone. Guessing that he was more likely right than wrong, I figured that would imply that Blackstone shares — ahem, “common units” — were expensive relative to their long-term market value. We’re not into the long term yet, but so far my guess has been correct.

Mind you, I didn’t foresee how the big drop-off in real estate would impact Blackstone. But I did note their own pre-IPO SEC filings, which warned that it could be years before they turned a profit for the holders of their shares. (Common units, schmommon units — I’m going to call them shares from here on.) They’re doing what they said they would do, in other words, except that the given set of reasons is slightly different.

The result of all this: a looowwww share price relative to the price at IPO. David Gaffen of the Wall Street Journal has perceptive things to say about this here. You can witness the share-price decline from above $35 to below $23 in all its splendor here.

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* If it need be said, I’m not a qualified financial advisor and I never give financial advice on this blog. I’m just sharing an opinion formed from some years of watching the markets.

It’s big, it’s obscure, it’s having a mondo IPO this week . . . that’s right, it’s Och-Ziff Capital Management, and here it comes barrelling down the pipe on our IPO Calendar.

Here’s the key quote from a post we did about Och-Ziff in July, when the IPO was first announced:

Och-Ziff is an asset management firm with about $27 billion of assets under management. It’s not a household name in the industry — it serves fund managers rather than individual investors — but it pulls down more than $1 billion yearly in revenue and has a broad portfolio of investments spread across the world. For a $2 billion IPO, expect this one to be on the quiet side.

Since then the IPO has been set a little bit lower — just north of $1.1 billion. Still it’s the biggest IPO to come down the pipe in a while. It will be interesting to see how the markets treat this company, given how badly the financial sector has gotten beat up lately.

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* This is my homage to Monty Python. No special reason . . . but do we need one?

If you’d like to see a summary of IPO activity for the quarter just ended, check out our IPO Scorecard. We have lots of informative summaries, including

• Best/Worst Returns
• Biggest First Days
• Happy CEOs
• Money Left on the Table

Do enjoy — and please feel free to offer any comments here.