Looking for IPOs in a quiet market

As noted the other day, the IPO market has gotten as quiet as its been since the 2001 to 2003 post-bubble drought years. But that doesn’t mean it’s time for investors to look away. The good folks at Renaissance Capital have a report up this week on their newly redesigned web site looking at what’s in store for the rest of the year. When times are tough, the crop of potential IPOs may shrink but it also tends towards more solid and dependable companies as investors shun the the fly-by-night types. And instead of watching newly-priced IPOs head for the stratosphere, investors can sometimes pick up bargains after share prices drop.

There are currently 129 active IPO filings, excluding special purpose aquisition deals, according to Renaissance. In a look at a few dozen of the more interesting prospects, they provide plenty of fodder for further investigation. Topping the list, at least by revenue, are a pair of energy companies, a hospital operator and risk manager which all filed to go public in the last five weeks and didn’t draw much attention from vacationing investors.

McJunkin Redman, which will go public under the symbol “MRC,” is a leading pipe and valve distributor for the oil and gas industry. Built through a couple of Goldman Sachs leveraged buyouts, McJunkin reported trailing 12 month revenue of $4.2 billion in its IPO filing last month. Even if the price of oil sags a bit further, the race is on to develop more supply, which should benefit an outfit like McJunkin for years to come. Of course, there’s the inevitable and grating half a billion dollar special dividend paid to the LBO owners in May out of borrowed funds. But past deals have proven that even highly-leveraged reverse LBOs can be winners in hot industries.

A second energy play is Cloud Peak Energy, with the proposed symbol of “CLD.” It’s the second-largest US coal producer. Coal companies have been hit by a hammer of late thanks to falling spot prices and expectations of a slowing world economy. Shares are down an average of 33% over just the past three months, according to Morningstar. Analysts are debating whether coal prices have further to fall and the entire industry is exposed further if the global economic slowdown is worse than expected. But those kinds of negative background factors sometimes prompt underwriters to price an IPO at cheap levels, so this is one to add to your watch list.

In the healthcare sector, specialty hospital operator Select Medical Holdings plans to go public under the symbol “SLC.” The company had revenue of $1.1 billion in the first half of 2008, up from $973 million in the first half of 2007. Net income slid to $14 million from $32 million, thanks in part to higher interest costs. There’s certainly risk to hospital operators from the political world which has to be weighed against the positive demographics of the aging US population. I’m not sure I’d wade into a situation with so much uncertainty, but Renaissance says it’s worth following.

Finally, one that intrigued me, the risk management firm Verisk Analystics, with the proposed symbol “VRSK.” Recall that competitor Riskmetrics Group (Symbol:RMG) is one of the most successful IPOs of the year, up 28% since going public in January. Verisk is focused on the property and casualty insurance business while Riskmetrics works largely in the realm of investments and brokerage firms. It reported revenue of $802 million and net income of $150 million in 2007. The company is owned by some of the largest insurance companies who are planning to cash out in the IPO. Selling shareholders can be a red flag for IPOs, since the company doesn’t get any of the proceeds of the deal to fuel further growth. But the shares could be worth a look if they end up priced at the low end.

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