IPO Underpricing The 19992000 Experience

Table 16.2, along with Figures 16.2 and 16.3, shows that 1999 and 2000 were extraordinary years in the IPO market. Almost 900 companies went public, and the average first-day return across the two years was about 65 percent. During this time, 194 IPOs doubled, or more than doubled, in value on the first day. In contrast, only 39 percent did so in the preceding 24 years combined. One company, VA Linux, shot up 698 percent!

The dollar amount raised in 2000, $66 billion, was a record, followed closely by 1999 at $65 billion. The underpricing was so severe in 1999 that companies left another $36 billion "on the table," which was substantially more than 1990-1998 combined, and, in 2000, the amount was at least $27 billion. In other words, over the two-year period, companies missed out on $63 billion because of underpricing.

October 19, 1999, was one of the more memorable days during this time. The World Wrestling Federation (WWF) and Martha Stewart Omnimedia both went public, so it was Martha Stewart versus "Stone Cold" Steve Austin in a Wall Street version of MTV's Celebrity Deathmatch. Proving that good taste (usually) triumphs, it was a clear smack-down as Martha Stewart gained 98 percent on the first day compared to 48 percent for the WWF. If you're interested in finding out how IPOs have done recently, check out our nearby Work the Web box.

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