Tech IPOs Rebounding From Downturn; Riverbed Up More Than 200%; The venture-backed initial public offering stocks rose an average 37% in 2006
BYLINE: BRIAN DEAGON
It is, perhaps, the best of times and the worst of times for two tech firms that went public in 2006.
The IPO of Riverbed Technology, which makes products designed to boost the performance of wide area networks, has tripled since its launch Nov. 21. That made it the biggest winner of all 198 IPOs in 2006, up from 194 in 2005, according to Renaissance Capital.
The IPO of Vonage Holdings, a provider of Internet phone service, ranked last. Vonage went public in May at 17, peaked its first trading day at 17.25, then plummeted. It ended the year at 6.94, down 59%.
"Vonage plunged like a hot knife through butter," said Linda Killian, portfolio manager of the IPO Plus Fund, a unit of Renaissance Capital. Institutional investors, she says, at first acquired the stock, with hopes that individual investors would step in. They didn't. The leader in voice over Internet protocol, or VoIP service, is not close to the black and faces stiff competition.
Vonage was an exception for venture-backed IPOs in 2006, which included the majority of tech IPOs. Since September, nine tech IPOs have shown double- or triple-digit gains. Top performers also include telecom parts provider Acme Packet, up 100%, and data storage firm Isilon, up 110%.
The fourth quarter had 21 venture-backed IPOs, up from eight in the third quarter, the National Venture Capital Association says.
Renaissance Capital titled its annual review of IPOs "The Return of Traditional Growth IPOs." After the dot-com bomb of 2001-03, tech IPOs were in the doghouse, but investor interest is back, Killian says.
"We see a beginning of the return of some of the more tech-oriented growth companies that have been absent from the market for several years," she said.
Technology IPOs "posted a very impressive 37% average return from the offer price," Killian said.
Other top-performing tech IPOs last year included fabless digital chip supplier Techwell, up 78%, and digital compression software firm DivX, up 44%.
Still, no one's calling the tech IPO market robust.
"One quarter doesn't make a trend," said Emily Mendell, an NVCA spokeswoman. "To claim a recovery, we need to see 20 or 30 IPOs per quarter, consistently."
The year ended with 58 venture-backed IPOs vs. 56 in 2005. Those IPOs raised $5.3 billion, up 18%. The total raised from all IPOs rose 26% to $43 billion, led by the $2 billion-plus MasterCard offering.
As of Tuesday, 36 venture-backed companies had registered to do an IPO, says the NVCA. That's down from 51 as of Oct. 1, but up from 16 a year ago.
Among those on deck are BigBand Networks, a maker of broadband multimedia gear, and Aruba Networks, which sells wireless networking products for businesses.
Lagging sectors include biotech; most biotech IPOs in 2006 ended up priced well below their companies' proposed ranges as investor interest flagged, says Renaissance Capital. But there have been top performers. The second- and third-best IPOs of 2006, behind Riverbed, were biotechs.
Omrix Biopharmaceuticals went public in April at $10 a share and ended the year at 30.26, up 202%. Omrix makes surgical products and those that treat immune deficiency and infectious diseases.
Acorda Therapeutics went public in February at $6 a share and ended at 15.84, up 164%. It makes therapies for spinal cord injuries.
Still,Omrix's asking price was cut 33% and Acorda's was cut 46%.
The cool IPO market is a far cry from the dot-boom days.
"The levels that deals were priced at in '98 and '99 were ridiculous," Killian said. "Deals are now being priced at more reasonable levels."
Renaissance Capital expects venture-backed tech and Internet companies to continue an IPO revival.
Renaissance Capital and the NVCA say the IPO market would get a boost if Congress overhauls Sarbanes-Oxley, legislation put in place after finance scandals that led to the collapse of Enron, WorldCom and others.
"It's . . . hideously expensive and grossly ineffective legislation that made politicians happy and auditors happy but, in my view, is absolutely worthless," Killian said.
The law has been disproportionately burdensome to small companies, the NVCA says, because it makes them spend millions to upgrade computer systems to comply with new financial reporting rules.
"There is potential to see measurable Sarbanes-Oxley relief for smaller companies in 2007," NVCA President Mark Heesen said in a written statement. "In absence of this reform, venture capitalists will look at other liquidity paths," such as IPOs on a foreign stock exchange.