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The Cutting Edge | California Dealin': Financing the
State's Emerging Companies

IPO Volume Surges 40% in the First Quarter, Setting Record

April 05, 1999|DEBORA VRANA | TIMES STAFF WRITER

California companies raised a record amount of money through initial public offerings, or IPOs, during the first quarter of 1999.

IPO volume statewide increased nearly 40% to $1 billion in 16 deals during the first quarter, compared with $746 million in 18 deals during the first quarter of 1998, according to Securities Data Co., a New Jersey research firm.

And activity more than tripled from the $323 million raised during the last quarter of 1998, the firm said.

These gains occurred even as national IPO volume dropped 9%, compared with the year-earlier period, to $6 billion.

While the raising of capital is not seen as a key overall economic indicator, economists and analysts closely follow the amount of money raised as a gauge of which sectors of the economy are vibrant and growing.

Although quarterly IPO volume rose statewide, it was driven by technology-related financings from Northern California companies. The dollar amount raised by Southern California companies dropped 39% from the same period a year ago, to $242 million from $397 million.

In Northern California, the story was different, with IPO activity more than doubling to $792 million from $349 million.

"While the numbers are down in Southern California, I wouldn't consider it a trend. Our economy is making a lot of progress here," said Nancy Sidhu, principal economist with BankAmerica in Los Angeles.

"This is one thing we watch, but for the economy as a whole, we look more at the traditional numbers, such as employment," she said.

Looking ahead to the second quarter, Southern California could catch up because major deals, such as an IPO by Santa Monica Web site EToys that could raise up to $115 million and a $44-million offering by Santa Monica-based digital music firm Launch Media, are on tap for this spring.

Northern California deals in the works include a $50-million IPO by Extreme Networks, a Cupertino-based provider of local-area-network switching systems, and initial offerings from NorthPoint Communications Holdings, a San Francisco-based telecom company, and Mountain View-based software firm Marimba.

During the first quarter, high-profile deals in Northern California included the nearly $50-million offering by San Francisco-based MarketWatch.com, a financial Web site, and a $240-million deal by Del Monte Foods, the longtime San Francisco processor of canned goods.

Major Southern California IPOs included the nearly $165 million raised by Los Angeles-based executive search firm Korn/Ferry International and a $48-million offering by Corinthian Colleges, a Santa Ana-based operator of trade schools.

"Northern California is still the engine driving this state," said John B. Jackson, a senior vice president in Los Angeles with Bowne & Co., a financial printer.

Jackson said it isn't surprising that financings by Northern California companies led the way.

"There is a well-known venture capital hub funding these technology firms. Still, remember the largest deal there was not a technology deal--it was a food company," he said, referring to Del Monte.

"But overall, financing in the state is still very strong. It's a return to a healthy equity market. We're going to have a very strong summer," he predicted.

Among all debt and equity deals by California companies during the first quarter, a total of $11 billion was raised, 2.6% less than the $11.3 billion raised during the first quarter of last year and 14% less than the $12.8 billion raised during 1998's fourth quarter.

While the commercial banking sector accounted for 31% of the state's total financings--Unionbancal Corp.'s $618-million secondary stock financing deal was the sector's largest financing--the technology sector was not far behind.

In Northern California, technology companies raised $1.4 billion, accounting for 20% of the region's capital-raising. In Southern California, technology deals accounted for 15%, Securities Data found.

"I'm always concerned about looking at one quarter to see where a region is headed," said Clifford Numark, program director with the nonprofit Los Angeles Regional Technology Alliance. "I like to look more long-term. On the ground, we seem to think [the Southern California economy] is doing very well. The public markets are just one factor in terms of determining strength."

Numark noted that many Southern California firms are privately owned, so their capital-raising strategies are different, with financings that aren't easily tracked.

More Southern California firms will launch IPOs as the region's tech sector and venture capital community comes of age, experts said.

"It's interesting. We'll be watching these types of numbers, but we aren't alarmed," Numark said.

*

Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Southland Lags

Volume of initial public offerings was up strongly statewide in the first quarter of 1999 over the year-ago period, but the increase was centered in Northern California, where many Internet companiess are based.

California

IPO volume (in millions)

1st qtr '98: $746

1st qtr '99: $1,034

% change: +39%

*

Northern California

IPO volume (in millions)

1st qtr '98: $349

1st qtr '99: $792

% change: +127%

*

Southern California

IPO volume (in millions)

1st qtr '98: $397

1st qtr '99: $242

% change: -39%

Source: Securities Data

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