DECEMBER 27, 2010, 1:54 P.M. ET.

Billion-Dollar Babies Return

Look for Private Equity to Pump Up IPOs in the Coming Year

By LYNN COWAN

After a year in which most U.S. IPOs clocked in at less than $200 million, investors can expect a larger slate of billion-plus offerings in 2011.

There are currently a handful of companies waiting in the wings to launch initial public offerings of stock that will raise $1 billion or more, including hospital operator HCA Inc., Kinder Morgan Inc. and Nielsen Holdings NV, with Nielsen considered the most likely to move ahead early in the year. But there is also some bustling behind the scenes from companies that have yet to file prospectuses with the Securities and Exchange Commission, say bankers.

"In 2011, we will see some very large multibillion-dollar IPOs. Obviously, some are already on file, but there will be more to come from private-equity firms that have large holdings they are more likely to exit through the public markets," says Mark Hantho, global co-head of equity capital markets at Deutsche Bank.

Indeed, private-equity firms, one of the main sources of plus-size IPOs in America, have been sitting on many of their larger holdings since the middle of 2008, when the global economic crisis iced over demand for new stocks.

With the grand exception of General Motors Co., which raised $23.1 billion in common and preferred shares in November, there hasn't been another IPO to raise more than a billion dollars in 2010, though there were several in 2009. The majority of other deals that priced in the U.S. during 2010 were for the most part small, coming in below the $200 million mark.

GM didn't have much of a pop on its first day, but it placed 550 shares of common stock in investors' hands just 17 months after its old shares were deemed worthless in bankruptcy court, an indication that investors were willing to take on more risk—and larger allocations.

"Going forward, the size of IPOs will be, on average, larger. Investors are increasingly focused on larger market-cap opportunities, which offer more liquidity," says Joe Morea, head of U.S. equity capital markets at RBC Capital Markets.

However, not everything that is bigger will be considered better. Part of GM's appeal was its strong balance sheet when it emerged with from bankruptcy in July 2009; it had a low debt load and was profitable. Harrah's Entertainment, owned by Apollo Management and TPG Group, pulled its planned IPO the same week that GM's succeeded as investors balked at the state of its business and its balance sheet.

Companies with large amounts of debt or other blemishes can still get done, but bankers have to price them carefully in 2011, maintains John Fitzgibbon, president of IPO ratings firm IPOScoop.com. According to IPOScoop's analysis of data from 2000 to 2009, the average first-day gain for companies that priced below their expected ranges was 1.9%; those that priced within or above their ranges returned 36.9% on their debuts.

"People talk about debt, sectors that are in and out of favor, etcetera," says Mr. Fitzgibbon. "But all of that can be factored into the price."

Write to Lynn Cowan at lynn.cowan@dowjones.com

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