1991: Big Year For Stock Issues

Pace of new offerings highest since early '80s

WHO would have thought it? Despite recession and an uncertain economy, new public stock offerings - both initial public offerings (IPOs) and secondary stock offerings issued by companies whose shares are already traded publicly - have proven easier to find this year than flocks of consumers in retail shopping malls.New initial stock offerings had begun to take off in the first half of 1990, but then they began to droop by mid-summer, reflecting concerns about the Gulf crisis and a slow economy. This year has proven to be a turnaround, with new offerings substantially up in the past few months. "We expect 1991 to be the best year for IPOs since 1986, when new offerings totaled over $18 billion," says Joe Miller, an analyst with Securities Data Company, a financial services firm in Newark, N.J. There are many ways of measuring new offerings. Standard & Poor's Corporation, for example, monitors new offerings of $5 million or more. (Securities Data counts almost all new issues, of whatever value.) IPOs in 1991 will surpass every year since the early 1980s, says Mark Basham, a Standard & Poor's analyst. After starting slowly, with only four IPOs in January, the number began to build, Mr. Basham says. In June, there were 41. October and November each had 40 IPOs. Securities Data Company counts some 344 IPOs as of this writing, with a total dollar value of over $15 billion. And there could be another 67 before the end of this year, the company reckons, bringing the dollar value to over $17 billion. The new issue market generally tends to mirror a rising stock market, which explains the IPO activity in the middle part of this year. The Dow Jones industrial average went from around 2900 points in June 1991 to a high of 3,077 on Oct. 18. But the stock market has been in a downward spiral since then, although it rose sharply earlier this week after a new interest-rate cut by the Federal Reserve. Part of the reason for the surge in stock offerings, say experts, is the high valuation level of the market. The price/earnings ratio on the S&P 500 stock index, for example, is now around 21. A more typical valuation is in the 12 to 15 range. Many companies are eager to tap into their "intrinsic value" and attract equity to be used to retire existing debt or fund capital investment. And, looked at through the eyes of investors, valuation levels for new offerings can often be far more reasonable than for an established market war horse. Secondary offerings - new issues of existing corporate stock - are up along with IPOs. According to the Securities Industry Association, corporations will have a net stock issue of around $35 billion this year. Last year stock retirements outpaced new secondary stock issues; and there were massive net levels of stock retirements in the late 1980s. The 1980s, in fact, was a decade of disappearing equities, as scores of public companies such as RCA, General Foods, and Allied Stores were gobbled up in mergers or taken over in leveraged buyouts. Now, 1991 is adding up as one of the best years ever, if not the best, for all combined stock offerings, Miller says. A key uncertainty remains: Reverse leveraged buyouts appear to be stalled. These are new stock offerings by formerly public corporations that went private in the leveraged buyout wave of the '80s, but are now seeking to go public again. Some firms that had planned reverse buyouts put off the moves as their stock prices slumped in the recent market downturn. A rising market could enable these firms to again go to the market to raise cash.

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