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Safe IPOs Start to Flow Back to Market

Diane Hess

Caution continues to be the name of the IPO game, as evidenced by this week's stock offerings.

New issues for the week include auto insurer Direct General(DRCT Quote), which began trading on Tuesday, real estate investment trust Gladstone Commercial, government services provider Providence Services and regional bank Texas Capital Bancshares.

Each of the firms -- which represent some of the steadier industries in a still-shaky economy -- was recently profitable, according to Securities and Exchange Commission filings.

Three years after the collapse of the stock market bubble, investors remain very reluctant to take on IPOs with risk attached to them. "You are getting deals from insurers and reinsurers. They are good for safety," said Jeffrey Hirschkorn, a senior analyst at IPO Monitor.

Direct General's IPO follows a well-received offering from auto insurer Infinity Property & Casualty(IPCC Quote) in February.

On Monday, Direct General sold 6.93 million shares at the top of its proposed range of $19 to $21 a share to raise $145.6 million. The stock was lately higher $2.96, or 14.1%, to $24 on its first day.

Notably, Keefe, Bruyette & Woods, a New York bank focused on the financial services sector, was the lead manager on the deal. "You are seeing a diversification in underwriters," said Hirschkorn. "People are looking to regional investment banks for security."

Washington-based Ferris, Baker Watts is the banker for Gladstone Commercial, which hopes to sell 5.5 million shares at $15 apiece, according to SEC filings. Gladstone is the third REIT to IPO this year, after American Financial Realty Trust(AFR Quote) and Maguire Properties(MPG Quote) in June.

Georgia bank SunTrust Robinson Humphrey is planning to take Providence Service public. Providence is expecting to sell 4.3 million shares for between $10 and $12 a share.

Lehman Brothers will manage Texas Capital's offering of an estimated six million shares for between $10 and $12 a share. In October, the bank postponed its deal, citing unfavorable market conditions.

More recently, auto parts maker JL French Automotive Casting withdrew its IPO on Monday, blaming market conditions. The news followed recent decisions by Converse, Crystal Decisions and White House to be acquired rather than go public.

While IPO activity has picked up lately -- there have not been four IPOs in one week since last November, according to Thomson Financial -- enthusiasm for deals continues to be tempered.

"We are in a market where investors are still trying to find their way back to sanity," said Hirschkorn.