IPO Heyday Is History, Analysts Say


IPO Heyday Is History, Analysts Say

By Tania Anderson
Staff Writer

The high-tech initial public offering frenzy that made headlines in 1996 is over.

Analysts said the urgency of local, high-tech companies last year to enter the public market will not continue in 1997.

"There were too many disappointments in 1996," said Ulric Weil, senior technology analyst for Friedman Billings Ramsey, an investment banking firm in Arlington, Va. "Too much was expected from some of the larger IPOs."

Dampened expectations are causing companies to be more cautious this year, analysts said. As a result, there will be fewer IPOs in 1997, and companies will be raising less money in each offering, analysts said.

Internet service providers, telecommunications and software companies led the local march to the public market last year. Indeed, the Washington region experienced at least two IPOs per month in 1996, raising between $9 million and $84 million per offering, according to analysts.

This year, the limelight will shift to the content providers of the Internet - companies specializing in year 2000 solutions and outsourcing companies, according to Weil.

Nine local, high-tech companies have already filed statements to go public with the Securities and Exchange Commission. Another handful of companies are considering going public in the next few months, according to industry insiders.

Two local companies have had a bumpy ride since staging successful offerings in 1996 - CyberCash and PSINet, said Weil.

Since its offering in February 1996, CyberCash's stock has fluctuated between $64 3/4 and $12 1/4. The company hit its low Feb. 20 of this year. CyberCash raised $40.8 million in that offering.

PSINet raised $45.6 million in May 1995, but the company's stock value has bounced between $19 3/8 and $6 3/4 in the year ending in February 1997. The company hit its low in April 1996.

Other notable IPOs in 1996 included LCC International Inc. of Arlington, Va., which raised $84 million; Primus Telecommunications Group, McLean, Va., which raised $63 million; and Yurie Systems Inc. of Lanham, Md., which raised $48 million.

High-tech IPOs are heavily tied to the market's perception of the return on high-tech companies, said Steven Shea, senior vice president of Ferris Baker Watts Inc., a provider of investment banking services in Baltimore.

There may be some large IPOs coming from larger high-tech companies in the Washington area, he said, but fewer IPOs overall.

Analysts said it's hard to predict how many IPOs will take place in 1997, but they expect the bulk of them to occur in the fall because of traditional market swings. One analyst said the decrease in IPOs in 1997 mirrors a decline in venture capital deals, which also hit a high in 1996.

However, Marc Benson, general partner of the $75 million Mid-Atlantic Venture Fund, disagrees that there will be a decline in venture capital deals.

"We have seen better quality [venture capital] deals going through than we've ever seen before," said Benson. "We will definitely do more deals this year than last year."

But Benson did acknowledge that companies are more apprehensive about entering the market this year because of last year's market fluctuations.

"Our analysts think that what's happening right now is similar to what happened last summer when the market slowed down for six to eight weeks," he said. "[The number of IPOs] is not going to be as robust as last year."

Bob Kopecko, director of entrepreneurial services in the middle market practice of Ernst & Young, disagrees.

"The economy's undercurrent is in favor of a strong robust year," said Kopecko. "We have a great local, business environment and companies are in need of capital to expand their business."

"Right now the market would like to see companies that are profitable," said Weil. "Investors like companies that have already delivered in the past, rather than rely solely on future [market trends]."

For instance, CyberCash's stock has dipped in value because of its electronic commerce product's slow entrance into the market, according to analysts.

However, many of the companies interested in the public market are older and have products in the market. Landmark Systems Corp. of Vienna, Va., Spaceworks in Rockville, Md., Norman Data Defense Systems in Fairfax, Va., Visual Networks Inc. in Rockville, Md., and Lightspeed International in Sterling, Va., are interested in an IPO sometime this year, according to sources.

Homecom Communications Inc., an Internet software company based in Atlanta but has its Internet securities group in McLean, Va., is offering 1.25 million shares valued at between $6 and $7 per share. Company executives said they hope to raise $8 million when the offering is completed within the next month.

Dunn Computer Corp., a manufacturer of custom computer systems in Sterling, Va., was one of the first local companies this year to file a statement with the SEC to offer 1 million shares at $5 a share. Objective Communications Inc., a developer of videoconferencing equipment in Chantilly, Va., is offering 1.8 million shares valued at $5 to $6 a share.

Maximus Inc., a government consulting firm in McLean, Va., also filed a statement to go public and plans to complete the offering later this year. And RWD Technologies Inc., an infotech consulting services company in Columbia, Md., expects to complete its offering of 3 million shares, valued at $10 and $12 per share, in April.

Several other local companies have already completed offerings in 1997. Deltek Systems Corp., a software company in McLean, Va., completed its offering of 1.9 million shares at $11 a share, and Template Software Inc., a software company in Dulles, Va., completed its offering of 2.1 million shares at $16 a share. Both companies plan to use proceeds from their offerings for working capital and future acquisitions.

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