Robertson, Stephens & Co., a San Francisco investment banking firm, has raised $723 million this year through 15 initial public stock offerings, better than its banner performance in all of 1983. The story is much the same among nearby rivals Hambrecht & Quist Inc. and Montgomery Securities, where executives are elated by the flood of highly lucrative underwriting business.
"This is probably our best year ever for IPOs, and it's continuing," boasts Alan Stein, Montgomery's executive director. "The momentum is feeding on itself."
Buoyed by the hot market for small and medium-sized stocks, the IPO market nationally is back in vogue after a long hiatus. That's not good only for the pinstriped set. The news is also sweet for emerging growth companies, which create the bulk of jobs in America, and for the beleaguered venture capital industry, which has had trouble attracting investors.
And, for once, the resurgence of IPOs may even be good for individual investors, who typically have been burned by new stock issues. Now they appear to face better profit prospects as underwriters give deals more scrutiny and expand their vistas well beyond risky biotechnology and high-technology offerings.
Hambrecht & Quist says it's rejecting twice as many deals as it did in 1983. Montgomery Securities is still taking exotic issues public, but names also include Bon-Ton Stores Inc., a York, Pa.-based chain of small department stores, and Sun Television & Appliances Inc., a Columbus, Ohio, consumer electronics retailer.
Health-care stocks also have become extremely popular against the backdrop of an aging population. Robert Mescal, an IPO specialist at the Institute for Econometric Research, a Fort Lauderdale, Fla., publisher of seven financial newsletters, says 17 of 40 stocks expected to go public in the next month fall into the category.
"If these companies use funds from the offering for additional research and investment in facilities, there is a strong possibility they will grow and prosper," he says.
According to New York-based Securities Data Co. Inc., 224 companies raised nearly $9.4 billion in new public offerings in the first nine months of this year, far better than any year since 1987.
Besides the strong market for small stocks, volume is being swelled by so-called "reverse leveraged buyouts" -- public companies that had been taken private and now are selling stock back to the public. Included are Caldor Inc., Duracell International Inc. and the Enquirer-Star Group, publisher of the National Enquirer.
Barring a market crash, some investment bankers contend that this year's resurgence of IPOs marks the start of a long-term trend.
Sandy Robertson, the founding partner of Robertson, Stephens, says the LBO craze drained $520 billion in equity from the stock market in the six years that ended in 1989 -- the total amount of every issue brought public since 1929. The shortage of stocks, ++ coupled with a threefold increase in the assets of pension funds and other institutional investors in the last decade, has created heightened demand for new stock, Mr. Robertson says.
"There is enormous underlying demand for the re-equitization of the nation's financial markets," Mr. Robertson says.
Meanwhile, most IPOs today boast longer histories and fatter profits, reflecting both a pent-up supply of strong corporate survivors and an investment banking community that is looking especially hard at quality. Many IPO investors lost lots of money in 1983 and in 1987, investment bankers admit, so they must redouble efforts to bring public only truly solid companies if their own firms are to remain viable.
"We're trying very hard to be very careful and avoid the problems of the past," says Montgomery's Mr. Stein.
Despite scant signs of excess, except perhaps among a few biotechnology offerings, some investment bankers are even taking the unusual step of publicly proselytizing about the need to remain staunchly vigilant about quality.
"I'm cautioning my colleagues to restrain themselves from getting carried away with the competitive process," Lloyd Greif, vice chairman of San Francisco's Sutro & Co., says. "We all have an obligation to toe the line. It takes only a few very bad
deals to destroy the entire market."
A durable IPO market would give a sorely needed boost to the venture capital industry, which has seen investment inflows plummet in each of the last four years. Companies that go public almost always afford much better returns than those that do not.