IPO Market Heats Up

It hardly qualifies as a 1999-style party, but for the first time in a while the initial public offering market is making some noise.

This year already has seen more than 180 new issues come to market, and the deals are still flowing. Thursday saw pricings in rural telecom provider Iowa Telecommunications (IWA Quote), Dallas-based insurer Specialty Underwriters (SUAI Quote) and biotech researcher PRA International (PRAI Quote). This morning, shares in media tech player PortalPlayer (PLAY Quote) are due to start trading.

While this year's output amounts to just a fraction of the 486 IPOs that bubbled forth in the peak year of 1999, it's a huge improvement on the last three years. Between 2001 and 2003, fewer than 85 new issues came forth annually. And most IPOs are gaining on their first day, if only modestly, pointing to a healthy market, observers say.

"The current market has been the best in three years," says Linda Killian, portfolio manager for the (IPOSX Quote)IPO Plus Aftermarket fund, a mutual fund that invests primarily in new issues. "That might not be saying much considering where we have been, but it is definitely a reflection of what is going on in the economy."

Killian says the average first-day pop for 2004 IPOs has been in the 15% to 20% range. She calls that "sensible," since buyers of risky IPOs should be compensated for taking a chance on an unseasoned company.

Those gains are a far cry from the returns IPOs provided in the late 1990's, when hot Internet offerings often doubled or tripled on their first day. Killian's fund, for instance, returned 115% in 1999, when the market was ripe. Killian and her partners started the fund in 1997, at the dawn of the Internet boom.

Unfortunately for Killian and her shareholders, those returns burst along with the tech bubble. After peaking in 1999 with over $200 million in assets, the fund lost money as IPO action dropped dramatically. The fund lost 42%, 52% and 22% in consecutive years. By last year it was down to less than $20 million in assets.