IPO

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By JASON BOOTH

Staff Reporter

There was a sharp drop-off in the number of Los Angeles-based companies that filed initial public offerings during the first six months of this year perhaps reflecting the problems in Asia or a general IPO skittishness on Wall Street.

As of the end of June, seven L.A. County-based companies had gone public, raising a total of $211.8 million, according to Agoura-based research firm IPO Monitor.

That’s down from the first six months of 1997, when nine companies raised $635.5 million through IPOs. And it’s an even steeper drop from the second half of 1997, when 14 local companies raised $1.1 billion by going public.

The L.A. companies that went public in the first half of the year raised an average $30.3 million each, compared with $96 million for all of 1997.

Investment bankers say executives are pulling back from last year’s trend of turning to Wall Street for capital, due to volatility in the stock market brought on by the Asian economic crisis and fears of an interest-rate increase.

Although these jitters haven’t yet had a major impact on the big stock indexes, they have dampened investor enthusiasm for new offerings. Investors who last year might have been willing to buy into newly listed firms are opting to invest in large, blue-chip stocks.

“We are in an active IPO market, but a cautious one,” said Scott Wendelin, managing director at Sutro & Co. in West Los Angeles. “Investors currently have a greater appetite for large, liquid companies in an era of uncertainty.”

L.A. is all the more sensitive to this trend because many of its fastest-growing firms are smaller and more entrepreneurial than IPO candidates in other cities, investment bankers said. There also is a perception that the L.A. companies coming into the market are of lower quality than earlier IPOs.

“There is a feeling that the better IPOs have already come out, and maybe the ones that are coming now needed to mature a little more,” said Alan Stone, managing director of Alan Stone & Co., a Westwood financial and investment counseling firm.

The most successful IPO in L.A. so far this year came from Long Beach-based First Consulting Group Inc. The firm, which provides information technology services to health care organizations, has seen its share price gain more than 90 percent since going public Jan. 13.

The second-best showing is by Hawker Pacific Aerospace, a Sun Valley-based aircraft maintenance firm whose stock is up nearly 47 percent since trading opened.

But the prices of three of the seven local firms that went public this year are currently well below their issue price.

Rollerball International Inc., the L.A.-based maker of in-line skates, has lost nearly 48 percent of its value since it was offered to the public on April 1. And the stock of L.A.-based packaging designer Tag It Pacific Inc. is off almost 63 percent.

The slowdown in the number of local IPOs also stems from the disappointing performance of the local companies that went public in the second half of 1997, investment bankers say. Stocks of those companies, on average, have gained only 5.57 percent since their issue date, according to IPO Monitor.

Scheid Vineyards Inc. of Marina del Rey is down 28 percent since it went public in July 1997, while Gardena-based Compass Plastics & Technologies Inc. is down 70 percent since its September IPO.

By contrast, the companies that went public in the first half of 1997 have seen their share price increase an average 105 percent, led by high flyers like Pasadena-based Internet company EarthLink Network Inc., up 430 percent, and Agoura Hills-based Guitar Center Inc., up 110 percent.

The only imminent IPO is the $10.5 million offering by Team Communications, an L.A.-based television program developer. That deal was originally scheduled for the last week of June, but has been delayed due to inhospitable market conditions.

In light of the success of EarthLink and other Internet companies, the two most anticipated IPOs are by CitySearch Inc., a Pasadena-based firm that produces online arts-and-entertainment guides, and Santa Monica-based GeoCities, which operates communities of Web sites.

GeoCities plans to raise $72.5 million in an offering underwritten by Goldman Sachs. CitySearch has hired NationsBanc Montgomery to raise $50 million. Both have registered for IPOs, though the timing of the offerings has not been specified.

“A company could literally tack the word ‘Internet’ onto their name and their stock would double,” joked Michael Gardner, managing director of capital markets at Wedbush Morgan Securities. “I suspect they will do fairly well because of the explosion of Internet use. But sooner or later, those growth rates are going to slow, and if these companies do not have pretty good niches they could get into trouble.”

Two other firms that have registered to go public in the next few months are computer-network company Netcom Systems Inc. and nutritional-supplement company Natrol Inc., both based in Chatsworth.

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