Initial public offerings (IPOs) raised a record $214 billion worldwide last year, with 1,000 companies going public. (1) This may come as little surprise given the strength of corporate earnings and the stock market during 2006.

But heres something you probably didn’t know: IPOs listed in the United States accounted for only about 20% of the dollar volume. China was the year’s big winner. It was home to 155 IPOs that raised almost $54 billion during the year, including the largest IPO in history. (2)

Experts are expecting 2007 to be another big year for IPOs. But don’t look for the U.S. IPO market to be the same as in years past.

Going Private

In the past, the ultimate goal of many start–up companies was to go public. But it is becoming increasingly common for start–ups to seek to be acquired by a large corporation. There is some debate about the cause of this trend, but one common theory is that the cost of complying with the Sarbanes–Oxley Act of 2002, currently estimated at $3.5 million per year for a public corporation, makes it difficult for smaller–companies to compete. (3)

But not all IPOs are launched by start–ups. The largest U.S. IPO in 2006 raised $2.4 billion for a well–established company. (4) IPOs of established firms could become even more common in the near future.

Leveraged buyouts by private–equity firms have become extremely popular. These firms often take public corporations private and then attempt to cash out either with an IPO or an outright sale within a few years to generate returns for their investors. Because of the recent popularity of private buyouts, many market watchers expect some of these large IPOs to start–coming to market in 2007.

As if to underscore this year’s IPO potential, there were more than 60 companies waiting to go public in U.S. markets at the beginning of 2007, more than the number that went public during the first three quarters of 2006. (5)

The increased risk associated with unproven companies means that investing in initial public offerings would not be appropriate for every individual. However, it is widely believed that a thriving IPO market may be good news for investors in general because companies that want to go public usually wait for a strong economy and relatively stable stock prices.

1–5) The Wall Street Journal, December 21, 2006, and January 2, 2007

IPO Trends