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Lessons to learn from the Google IPO

The IPO market now enters the post-Google era. And the outlook isn't pretty.

The attention and fanfare over Google Inc.'s $1.7 billion initial public offering hid a sobering reality for Wall Street underwriters as they enter the traditional late-summer hiatus for stock issuance: Most companies are unable to complete their IPOs. The ones that do, including Google, have to do so at a reduced price. What's more, many of the companies to come to market have performed poorly.

It all adds up to a difficult environment in which to sell stock. "We're struggling," said Richard Peterson, chief market strategist for Thomson Financial in New York. "There are more losers than winners right now."

On the surface, the IPO market seems to have had a good year so far. To date, there have been 148 IPOs, raising $29.1 billion, according to data from Thomson Financial. By contrast, there were just 86 IPOs in all of last year, raising $16.1 billion, according to Thomson.

And more companies are filing to go public. There have been 277 potential IPOs filed with the Securities and Exchange Commission this year, the most since 674 filed in 2000.

But, there have also been more companies deciding to sit out this market. So far this year, 45 companies have either postponed or withdrawn their IPOs, more than the 42 to do so in all of last year - and 2003 was considered the weakest year for IPOs since the 1970s, wrote Associated Press.

In the final analysis, the success of the issue also stems from the fact that Merrill Lynch and other Wall Street firms participated in the auction. So what are the lessons to learn from the Google IPO?

If more companies resort to the auction method, it could put a check on some of the more egregious misuses of the bookbuilding method, such as allotting shares to favoured cronies and allowing them to make a killing. However, the point is not that the Dutch auction method is better than the traditional book-building route.

What is noteworthy is Google’s decision to be innovative about a new way to raise money. The world over the markets need to experiment with new approaches so that the best practices finally win out. Sebi would do well to take note of such innovations and encourage companies to experiment with them under controlled conditions, informs Business Standard.

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