IPOs set to bloom: First-quarter deals to gauge market sentiment

Institutional investors and aftermarket buyers gorged on telecom IPOs in 1999. Communications and networking were prime beneficiaries, with $5.9 billion raised in venture-backed IPOs, according to data compiled by VentureOne. Four $200 million-plus IPOs occurred in the fourth quarter alone: Allied Riser Communications, Classic Communications, Sycamore Networks and Tritel.

But as the federal reserve hikes interest rates, start-ups planning coming out parties for the first quarter may find investors more selective.

The equities market has never been democratic, however. Deals backed by the big-name underwriters will weather the storm better than those sold by second-tier firms, said Jeff Hirschkorn, senior analyst at IPO.com. And companies whose S1 filings contain the hot-button terms that got investors' juices flowing still will command premium prices, although their balance sheets may be full of red ink.

"Anything telecom in this market is going to do well - it's just hard to say how well," Hirschkorn said.

The test will come early. First-quarter wireless offerings will be some of the deals under the closest scrutiny. Early indications have been positive. InterWave Communications, a provider of GSM wireless network systems for corporate offices, watched its stock price nearly triple as it closed its first day of trading on Jan. 28 at 36 7/8. InterWave raised $110.5 million for a 19% stake in the company.

For a proxy of investor interest in wireless data plays, analysts suggest a look at i3 Mobile's offering in mid- to late February. Formerly Intelligent Information Inc., i3 Mobile is an intermediary that helps carriers deliver customized content and commerce to wireless devices via text messaging and microbrowsers. Major partners include AT&T, BellSouth and the National Weather Service. The lead underwriter is Deutsche Banc Alex. Brown.

The market's appetite for companies focusing on high-speed data services for small and medium-sized business also will be benchmarked in February. First out of the gate will be Choice One Communications, a Rochester, N.Y.-based integrated communications provider selling 7.1 million shares at $15 to $17 each. The company sells voice and data services in nine cities and plans to expand into 11 additional markets by the first half of 2001.

Later in the month, super-regional DSL provider Jato Communications may get a big first-day "pop," but its true fortunes will be revealed in the aftermarket.

While national DSL provider Covad Communications' stock price has appreciated steadily since its IPO, the performances of competitors Northpoint Communications and Rhythms NetConnections have been uneven.

Backed by investors who invested more than $50 million in private equity, Jato is targeting the same second-tier markets coveted by providers of fixed wireless services.

Investors likely will measure Jato's incremental success as they do Covad's, looking at the number of lines sold and the progress in co-locating its equipment in incumbent carriers' central offices (COs). According to Jato's S1 filing with the Securities and Exchange Commission, as of Nov. 30, 1999, it had co-located in 130 COs and expects to be in about 875 offices by the end of this year. To realize its network deployment targets, Jato estimates it will have to spend about $170 million in 2000. At press time, the company had yet to price its shares.

"The macro opportunity for a Jato is smaller, but it doesn't mean they're not a solid business - they'll be big fish in a small pond," said David Eiswert, director of broadband research at The Strategis Group.

The rest of the IPO menu for the first quarter is well diversified, including companies such as Universal Access, a Web-based intermediary for network-capacity provisioning; Via Net.Works, an ISP with services in Europe and Latin America; and optical network processor concern Avanex.

"There's certainly no lack of interesting deals in the pipeline," Hirschkorn said.