IPOs Weather Stormy Market

Bankers say they expect a strong fourth quarter for stock issuance world-wide. Global economic expansion is expected to outpace U.S. growth, and emerging markets appear to be buffered from the U.S.'s credit declines, said Jeffrey Bunzel, head of equity capital markets for the Americas at Credit Suisse Group in New York.

"They obviously were affected by it, but relative to other crises, they held up quite well. That's probably a good indicator for continued issuance from those areas going forward," Mr. Bunzel said.

Even in the U.S., stock issuance is expected to be brisk as investors focus on growth sectors like technology and health care. Based on the backlog of deals and the number of scheduled road shows, in which presentations are given to prospective investors, a slow September should give way to more activity in the months ahead.

Much Optimism

"There is certainly a great deal of optimism," said Joe Morea, head of U.S. equity capital markets at Royal Bank of Canada's RBC Capital Markets in New York. "The backlog is stronger than it has been in more than a year. This could prove to be an exceptionally active fourth quarter."

One IPO sector in the U.S. that was hit hard in the third quarter isn't expected to fare well going forward. There was waning interest in financial-services stocks in the U.S., reflecting concerns about the effects of the credit crunch on those companies.

Two large IPOs on the New York Stock Exchange were punished by jittery investors during the quarter: private-equity firm Blackstone Group LP and derivatives broker MF Global Ltd. Blackstone priced at the high end of its range and gained 13% on its first day of trading in June, but in July it fell below its $31-a-share price; Friday, it was at $25.08 in 4 p.m. composite trading. MF Global's offering in July sank 8% below its $30-a-share IPO price on its first day of trading, and Friday it was at $29.

"The finance companies, private-equity firms, leveraged buyouts -- those are going to have to sit on the back burner for a while. There will be a natural avoidance of those until we know we've hit bottom," said Ben Holmes, publisher of research site Morningnotes.com⁸. "I don't see many of those coming between now and the end of the year, and perhaps even through the first quarter."

Investors and bankers say some of the more high-profile financial-services deals in the U.S. pipeline -- alternative-asset manager Och-Ziff Capital Management Group LLC and private-equity firm Kohlberg Kravis Roberts & Co. -- may not be able to price this fall because investors are waiting to see how the credit downturn will affect their businesses. Both companies have continued to update their IPO prospectuses since the downturn, indicating that they haven't scrapped their plans to go public.

Staying Strong

Despite the difficult times for U.S. financial-services stocks during the third quarter, North America managed to raise the second-largest amount in IPOs of any region, behind first-ranked Latin America. A total of 38 U.S.-listed IPOs raised $10.56 billion during the third quarter, compared with 31 deals raising $6.42 billion a year ago, by Dealogic's count.

The two best-performing U.S. deals of the year also came in the third quarter: medical-software firm athenahealth Inc., which nearly doubled on its first day of trading in September, and software company VMware Inc., which jumped 76% the day of its August debut.

Bankers said they were able to launch a number of successful deals even after the broader market indexes turned south, largely because the new companies were in strong growth segments such as technology.

"That's in part a reflection of the underlying quality of those companies that came public. I think [Wall] Street has been successful in telling companies who could go public and who should wait," said David Topper, co-head of equity capital markets for the Americas at J.P. Morgan Securities, a unit of J.P. Morgan Chase & Co.

Elsewhere in the world, Europe continued to be the most active area for IPOs based on the number of deals, with 69 IPOs completed. The biggest increase in IPOs came from Latin America, where 21 companies raised $11.75 billion, compared with three offerings that raised $935 million in the third quarter of 2006, according to Dealogic.

Boost From Brazil

Investment bankers said the year-ago period in Latin America was unusually difficult for new issues during an otherwise strong year, because local markets were roiled by worries about a global economic slowdown, so the leap in activity doesn't reflect a sudden seismic change in that market. Brazil remained a major force for the region.

"Nearly 85% of Latin American issuance came out of Brazil," Mr. Bunzel said. "It's a large country with a large economy, and the only country in Latin America that truly has a liquid domestic market. It also has an economy that rewards entrepreneurship."

Mr. Bunzel said while activity will continue to be strong in Brazil in the future, he also expects more deals from Mexico, Colombia, and countries in the southern tip of South America.

Write to Lynn Cowan at lynn.cowan@dowjones.com⁹