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Will 2010 Usher In a New IPO Era?

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Quality trumps quantity.

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The IPO market followed a familiar pattern in 2009: In general, the quality of deals improved as the number of new issues brought to market declined from peak years.

Through December 17, 62 companies raised $24.6 billion in their market debuts, compared with the busiest year of 1996 when 874 IPOs raised $50.1 billion. In 2008, 50 deals raised $28 billion, including Visa's (V) $17.9 billion IPO, the largest US deal in history. That's down from 277 IPOs that raised $58.8 billion in 2007, says John E. Fitzgibbon, Jr., editor of IPO Scoop.com.

"As we go into 2010, the IPO market should continue to reflect the progress of the overall market," says Irv DeGraw, a finance professor at St. Petersburg College in Florida. "However, 2010 may have some political characteristics that will influence the direction of the IPO market. Given the fragile economic outlook, the extraordinary national debt and its influence on foreign exchange, and the uncertainty of the impact of healthcare legislation on both the health industry and small business, I expect a cautious IPO market with deals focused on select industries."

DeGraw anticipates solid deals in cyber security, electronic medical record-keeping, Internet-based education, and basic maintenance services such as electrical and plumbing work in 2010. Home repair is a play on the downbeat housing market: As more people stay in their current homes rather than trading up, wires, pipes, heating, and other basics will need to be repaired or replaced, creating an opportunity for a company that can create a national brand in the highly fragmented home-repair industry.

"The good news is that the sector may generate jobs -- and it can't be outsourced," DeGraw says. "There's a possibility of consolidations and IPOs in this 'dirty hands' sector."

Looking ahead, keep an eye on LinkedIn, a professional social network that's expected to go public, but hasn't yet filed a registration statement with the Securities and Exchange Commission. The company is backed by Goldman Sachs (GS), McGraw Hill (MHP), SAP Ventures (SAP) and Bessemer Venture Partners. Other big names generating chatter include venture-backed companies such as Tesla Motors, a maker of electric cars, and ZipCar, an urban agency that rents cars by the hour rather than by the day or week. Some older names, such as General Motors and Hospital Corporation of America, the largest for-profit hospital operator in the US, may return to the public market.

Winning IPOs in 2009 stuck to the basics: Education, infrastructure, software, and electronic games. The apparent outlier came in September as the broad market regained its footing -- A123 Systems (AONE), a maker of lithium-ion batteries for electric and hybrid cars. The company has received federal bucks and the IPO may be a bet on future federal funding and laws requiring electric vehicles as much as the current strength of the technology.

Rosetta Stone (RST) and Bridgepoint Education (BPI) struck a common theme: The need to sharpen skills to advance. Rosetta Stone attempts to make it easier to learn a foreign language. During the 2008 Olympics, the company featured an ad campaign with swimmer Michael Phelps, winner of eight gold metals, and it shrewdly launched its IPO less than a year later. But Rosetta Stone took a hit after the company lowered its earning guidance.

Bridgeport Education competes with Apollo Group's (APOL) University of Phoenix and other for profit schools offering bachelor's, master's and doctoral programs. Bridgeport also provides online programs. The company has posted steady revenue growth, growing to $218.3 million for the year ended December 31, 2008, from $1.3 million in 2004. Clearly, there's a market for non-traditional education.
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