IPO VIEW-Fall IPOs will face tougher scrutiny

By Phil Wahba

NEW YORK, Aug 15 (Reuters)- After a spate of disappointing initial public offerings over the last two months, the IPO market is on its traditional summer break for the rest of August.

But September may not bring much relief for underwriters as risk adverse investors are likely to shy away from all but the most compelling stories among companies coming to market.

"Solid businesses are what it takes," said Linda Killian, a principal at Renaissance Capital, a Greenwich, Connecticut-based IPO research firm.

This year is on track to be the worst for U.S. IPOs since 2003. According to Thomson Reuters data, there have only been 29 IPOs so far this year, about a quarter of the tally at this time last year.

Investors have reason to be wary. Renaissance Capital's IPO Index, which tracks the performance of U.S. IPOs over the past 24 months, has fallen 18.1 percent this year, underperforming the Standard & Poor's 500 index and the Nasdaq composite index, which are down 12 percent and 7.6 percent, respectively.

But it hasn't been all gloom and doom. Some IPOs from 2008 have done well so far.

For example, medical device maker CardioNet Inc (BEAT.O) has risen by 88 percent since its March debut, propelled by its niche market position. Intrepid Potash Inc (IPI.N) has soared 30 percent since its April launch, thanks to high demand for the crop nutrient which is its main product.

The year also saw the largest U.S. IPO ever, by credit card processor Visa Inc (V.N) whose shares have risen 34 since their March debut.

But others have stumbled. Verso Paper Corp (VRS.N), which provides paper to the ailing magazine industry, has plunged 53 percent since going public in May, making it the worst performing IPO of the year. And last week, coal producer Rhino Resources Inc shelved its IPO after coal stocks hit a bumpy patch, one of 58 offerings that have been pulled this year.

SHOW ME THE MONEY

After getting burned on a number of IPOs and with the overall equity markets volatile, investors are setting higher standards for upcoming IPOs, said Francis Gaskins of IPO Desktop.

Yet, this week alone saw seven new filings, which analysts say is a healthy pace given the time of year and state of the markets.

Companies trying their luck include Massachusetts-based rechargeable lithium-ion battery maker A123 Systems Inc, whose chief executive told Reuters on Friday he expects the company to float shares within three to six months, and use the proceeds to expand manufacturing and pay off debt.

Other anticipated IPOs include AGA Medical Holdings Inc, a maker of medical devices for heart defects; Yandex, a Russian Internet search technology maker that hasn't yet submitted its filing; and Liquidnet Holdings Inc, an operator of an alternative equities trading system, according to Scott Sweet, a senior managing partner with IPO Boutique.

Gaskins says to attract investors now, the rule of thumb is a market capitalization of $250 million or more, at least $80 million in annual sales and revenue growth of 30 percent per year. Companies should have at least three quarters of growth before attempting an IPO, and a "stellar" quarter going right into it, he added.