2004: The year for Tech IPOs

Lucas van Grinsven, European technology correspondent

LONDON: Investors, brace yourselves -- 2004 is gearing up to be the year of the technology IPO.

After a lengthy drought, investment banks are making bold predictions that as many as a dozen European companies will go public in 2004, ranging from software and Internet to mobile phone firms.

The successful initial public offering (IPO) of Scotland's Wolfson Microelectronics, trading some 33 percent above its October issue price, has helped make bankers confident there is pent-up demand for new technology stocks.

And, a recent frenzy for Chinese dot-coms and speculation mounting about the IPO ambitions of Web icon, Google, and U.S. circuit mobile operator, Cingular, has only upped the ante.

"I think the industry can do a dozen European technology IPOs next year," one London-based technology sector banker said. "Investor appetite is certainly there. If 2003 was the year of the convertible, 2004 will be the year of straight-equity such as IPOs and follow-on offerings," said a European technology sector adviser at a major London investment bank.

Since early 2000, when the technology bubble began to deflate, few IPOs have been done in Europe. Companies have quietly grown and are now ready to float in an upbeat market.

They include a large number of Internet companies, testimony to the fact that not all the promises made in the Internet bubble were pie-in-the-sky.

Price comparison sites such as Kelkoo, and online financial advisers Moneysupermarket.com are being mentioned as potential first-half flotation candidates.

"We will be observing the various flotations planned in the tech market, and, as the market strengthens this year, this is a question we will be asking ourselves," said Dorothea Arndt, marketing director for UK arm of Kelkoo.com.

CASH HUNGRY

In no way do these companies resemble the cash-hungry vehicles of the late 1990s which acquired customers at huge losses in a landgrab that was paid for with cheap capital provided by eager investors and venture capitalists. Unlike ISP World Online or online travel group Lastminute.com, some of the new Internet companies are profitable at flotation.

Price comparison Web Sites holds no inventory and sees strong earning potential. Gross margins, the percentage of profit after deducting the raw operating costs, can be as high as 80 percent. Such firms can be valued at hundreds of millions of euros.

That is the kind of profile investors like.

"Every IPO will have to prove that it offers more than the stocks that are already out there. It's not like the year 2000 when we were almost forced to buy, because the shares would soar on the first day," said Philippe Kiewiet de Jonge, coordinator of the technology, media and telecoms analysts team at ABN Amro Asset Management which oversees 30 billion euros of investments.

French telecoms and Internet service providers Iliad and LDCom have both said they are looking to float next year. Iliad, part owned by Goldman Sachs and advised by SG, may be valued at one billion euros.

MOBILE PHONES

More speculative are two are other large IPOs that may happen in the second half of 2004. Birmingham-based mobile phone maker Sendo, which shelved its flotation in 2001 when the market tanked, is again looking at an opportunity to raise money for expansion plans and to realize the value for managers and staff.

No mandate has been given and the firm has yet to make its aggressive 2004 plan to at least treble sales to $750 million and produce over five million handsets. Although profit margins are small in this consumer electronics-related business, the firm could be valued at many hundreds of millions of euros.

Symbian, the mobile phone software maker -- owned by Britain's Psion, Finland's Nokia, Sweden's Ericsson and other phone makers -- may also float. However, as its software is often combined with that of Nokia's Series 60 applications, Nokia may also want to own Symbian outright.

Encouraged by the Wolfson offering, other semiconductor companies are also expected to come to the market. Software is an area where bankers also expect action. They tip firms that provide multi-media messaging services, and security firms that specialize in defense of computer worms, viruses and spam.

"I have one IPO nearly on the shelf and a follow-on offering ready to go, one in software and the other in

semiconductor equipment," a second London-based banker said.

A second technology specialist banker says he has two IPOs waiting to go and expects to do a total of five during 2004.

The banks that will battle for the mandates include CSFB, UBS, Morgan Stanley, Goldman Sachs, Lazard and Merrill Lynch. For some, there is more at stake than just revenues after the numerous IPO implosions of the 1990s and 2000: their reputation.

© Reuters