2007 Outlook: Hope for the IPO Market

Finance in 2006 seemed to boom in nearly every corner: Mergers and acquisitions, buyouts, private equity and alternative investments -- all but initial public offerings.

It's not that IPOs had a bad year, at least compared with the past several years. And many people were encouraged by the modest yet sober performance of the IPO market as a whole. According to Renaissance Capital, 197 companies went public, raising $42 billion, compared with 194 companies raising $34 billion in 2005. The average deal size rose to $215 million from $175 million last year.

Renaissance said that the average return of newly public companies was 23% in 2006, well above major market indexes. But in a worrying sign, some of the biggest laggards came from technology, including voice-over-Internet protocol company Vonage , with a negative 61% return as of Dec. 21; online music retailer Digital Music Group , down 53%; and chip designer Himax , down 52%.

The money-losing ways of those three companies haven't been a surprise. But in an encouraging sign of Wall Street's continued sobriety, 71% of the companies that went public were profitable. Compare that with the 26% ratio of both 1999 and 2000.

In offering its 2007 predictions for the IPO market, Renaissance was more bullish on tech and start-ups. "We expect [Venture capital]-backed technology and Internet-based companies to continue their IPO revival in 2007, as many companies that got off the ground in the aftermath of the tech meltdown are now reaching a level of maturity commensurate to what is needed for a successful IPO," the report said.