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IPOs end on whimper
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December 26, 2000: 7:57 a.m. ET
Techs falter in IPO market but biotechs, 'old economy' rebound in 2000
By Staff Writer Luisa Beltran
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NEW YORK (CNNfn) - A dot.com rush helped the IPO market start off 2000 with a bang, but it ended the year with a whimper as the Internet crash caused most investors to opt out of the new issues market.
This year, the IPO yo-yo stopped as often as it started. New issues began first quarter strongly, with 141 companies going public during the first quarter alone. But a broad market correction in April, when the Nasdaq Composite index plunged, put the brakes on the flow of IPOs, which shrank to 104 in second quarter.
The IPO market again regrouped, producing a summer rally, with 145 companies opening in third quarter. But another downturn, where the Nasdaq again posted record losses, caused IPOs to plummet in the latter part of the year, with only 63 IPOs opening from October to December.
 "This year was one of the more disturbing for IPO investors," said David Menlow, president of IPOfinancial.com. "Market psychology was not just shaken but disassembled."
The dot.com rush in first quarter caused many IPOs to post first-day gains of 100 percent or more, Peterson said. But the April correction, coupled with a fourth-quarter downturn, have pared those gains.
Of the 453 companies that went public this year, 136, or 30 percent, are trading above their offer price. However, 309 deals, or nearly 70 percent, have fallen below their offer price.
Comparatively, nearly 90 percent of the IPOs that opened in 2000 are trading an average of 19 percent below their offer price, according to data from CommScan, a New York-based investment banking research firm.
"IPOs started out with great exuberance," said Richard Peterson, market strategist at Thomson Financial Securities Data. "Obviously, we've lost the earlier gains."
More than 250 companies, expecting to raise about $28.1 billion globally, withdrew or postponed their IPOs during 2000. Last year, only 125 companies, pulled their planned issues, hoping to raise $11 billion.
"We are going to look back at 2000 as the glory days that crashed," said analyst George Nichols, of Morningstar.com.
The winners
Technology issues, biotech and old economy companies provided the greatest gains in the IPO market this year.
Embarcadero Technologies Inc., a provider of e-business software, emerged as the top IPO in 2000. With but six days to go in the trading year, Embarcadero (EMBT: Research, Estimates) had risen 365 percent since pricing its deal at $10 on April 20.
 The flight from tech stocks helped an old economy company, Krispy Kreme Doughnuts Inc. (KREM: Research, Estimates) come in second place, climbing 218 percent since its April debut at $21 a share.
Krispy Kreme's strong performance indicates that the IPO market is becoming more balanced, said analyst Steven Tuen of IPO Value Monitor.
"This is just a rotation back into a more broad base set of industries that we will see going forward in the IPO sector," Tuen said.
The success of the genome project caused biotech shares to soar and forced the IPO market to take notice. The biotech bounce helped health care firm First Horizon Pharmaceutical Corp. (FHRX: Research, Estimates), which sells brand name prescription drugs, to take third place, rising 213 percent from its $8 IPO price.
Sonus Networks Inc. (SONS: Research, Estimates), a supplier of voice infrastructure services for service providers, also performed strongly in 2000. Sonus, which issued a 3-for-1 stock split in August, has risen 141 percent since its went public in May at $23 but could have placed higher without the split.
The losers
The IPO market will be known more for the losers it produced in 2000 than the winners. Of the 309 IPOs trading below their offer price, business-to-consumer deals suffered the greatest losses.
"The blowup in the marketplace completely unraveled IPO market confidence," IPOfinancial.com's Menlow said. "It was a dot.bomb market and investor wealth disseminated."
The most publicized business-to-consumer crash came from online retailer Pets.com (IPET: Research, Estimates), which went public in February at $11, and has fallen 99.2 percent from its offer price.
Other notable failures include Varsity Group Inc., which sells college textbooks online via VarsityBooks.com. Varsity Group (VSTY: Research, Estimates) has fallen 99 percent this year and is trading at about 6 cents. Home improvement site, improvenet.com (IMPV: Research, Estimates), has also dropped nearly 99 percent, and is now trading at 31 cents.
Sector champs
While dot.coms went belly-up, financial services offerings made a comeback in 2000. Insurers, in particular, made a strong showing. The IPO from Sun Life Financial Services of Canada (SLC: Research, Estimates) emerged as the top IPO for finance deals, climbing 186 percent since March.
Biotech stocks also shook off broad market volatility to rally at years end. Praecis Pharmaceuticals Inc. (PRCS: Research, Estimates), a drug discovery company which went public in April at $10, earned the title as hottest biotech IPO in 2000, climbing 128 percent. First Horizon Pharmaceutical, which turned in the year's third best performance, is the top healthcare IPO.
High oil prices, and the flight from tech stocks, helped energy deals heat up during the middle of the year but then cooled with the broad market downturn in third quarter. Still, energy deals still turned in respectable gains. Universal Compression Holdings Inc. (UCO: Research, Estimates), a natural gas company, has risen 44 percent since it went public in May at $22 a share.
Technology stocks took a beating in 2000 which helped put the IPO market in a slump. But there were still some bright spots. E-business software provider, Embarcadero Technologies, managed to rise 365 percent to earn the title as top tech IPO.
Nuance Communications (NUAN: Research, Estimates), another developer of voice interface software for computer networks, also emerged as a leading tech issue, climbing 147 percent from its $17 offer price.
The once-strong telecoms began faltering with the huge IPO from AT&T Wireless (AWE: Research, Estimates) in April and many telecom offerings are now trading in the single digits, analysts said. But some deals managed to stay afloat.
Lexent Inc. (LXNT: Research, Estimates), a provider of outsourced local telecommunications network solutions for service providers, is up 17 percent from its $15 July offer price. Peco II (PIII: Research, Estimates), which develops communications equipment, has also gained 14 percent from its $15 IPO price in August.
Networking deals
About 40 networking companies, those that supply the backbone for the Internet, went public in 2000. During the first half of the year, networking companies turned in some of the strongest performances but then faltered under the broad market downturn in fourth quarter, said analyst Mike Falbo, of IPOpros.com.
"Networking deals have definitely fallen out of favor," Falbo said. "Most of them are trading above their IPO prices but they're not as hot as have been."
McData Corp. (MCDT: Research, Estimates), a provider of equipment to the emerging storage area network industry, is the year's top networking deal. McData has climbed 69 percent from its $28 IPO offer price in August.
Fiber optics, once the strongest IPO sector, also lost its luster in fourth quarter. The group consistently produced some of the best first day gains in 2000, with many new issues soaring into triple digit territory. But the volume took its toll and the dismal debut of Luminent Inc. (LMNE: Research, Estimates), which rose by just 13 cents on Nov. 10, signaled the sector's demise.
"For a while optical networking was the hottest spot of the year but the clincher was Luminent," Falbo said. 
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