When K-Sea Transportation Partners priced its IPO on Thursday evening, January 8, it sent a signal to Wall Street: the 2004 IPO market was open for business – earlier than expected.

Because the IPO market usually comes to life in mid- to late January, it is unusual to see an IPO priced during the first full week of a new year. In the past decade, it has happened just twice. The earliest previous pricing of an IPO was the January 8, 1998, offering of Resource Assets Investment Trust. Over the last 11 years, the latest pricing date to kick off a new year was February 11, 2003, for the offering of Bancshares of Florida.

What’s in store for the IPO market in 2004? Easy answer: no one really knows. Wall Street talks about the long-term trends, but that thinking rarely goes beyond a three-month span: the previous month, this month, and next month. The outlook for the IPO market is even narrower, typically a four-week window. For proof, take a look at the forward IPO calendar: a timetable for bringing companies public. The four-week scope covers last week, this week, and the next two weeks. But don’t despair. The past gives clues to the future.

In starting a new year, the IPO market usually picks up where the previous one left off. Last year was a classic example.

In 2002, bankers priced just 85 IPOs. That was the lowest output of new issues since 1979, when bankers priced 62. As 2002 wound down, the issuance of new issues limped to the finish line. Only six IPOs were priced in December 2002. At that point, the stock market, as measured by the Nasdaq Composite Index, had lost 31.5 percent. The Nasdaq Composite closed at 1,335.51 on December 31, 2002, down from 1,950.40 on December 31, 2001.

In 2003, the year’s first IPO was not priced on February 11, but the year finished with a flourish. In December, bankers priced 24 IPOs. That made it the busiest month in more than three years, according to available records.

The end of the year flurry just about cleaned out the old IPO cupboard. Only two deals were left behind. Crosstex Energy and K-Sea Transportation Partners were scheduled to go public in mid-January. Then – out of the blue – Lehman Brothers (K-Sea’s lead manager) placed the deal on a previously nonexistent IPO calendar to be priced Thursday evening for Friday’s trading. If that wasn’t enough to grab attention, the price range was increased to $21.50 to $23.50 a unit, up from $21 a unit. Worth noting: K-Sea is a limited partnership and, for that reason, its publicly traded securities are units, not shares.

Under the "quiet period" provision of the Securities Act of 1933, Lehman Brothers could not comment about the price increase for the K-Sea deal. While in registration with the SEC, underwriters and brokers are prohibited from talking about or promoting a deal.

But the tape tells the story: there was strong demand. K-Sea was priced Thursday night at $23.50 per unit – at the high end of the increased filing range. On Friday morning, K-Sea opened at $26.20 per unit on the New York Stock Exchange.

The clues to the 2004 IPO market will initially come from the 2003 industrial sectors that were in play at year’s end: China-based companies, financials, Internet companies, and pharmaceuticals.

Made in ChinaChina Life Insurance priced its IPO at $18.68 a share on December 11, 2003. On January 8, 2004, it closed at $31.30 a share, up 67.6 percent from its initial offering price.

Ctrip.com priced its IPO at $18 a share on December 8, 2003. On January 8, 2004, it closed at $36.69 a share, up 103.8 percent from its initial offering price.

Currently, there are no other China-based companies in Wall Street’s IPO pipeline. But with this type of price action, it is only a matter of time before more start filing to go public in the U.S.

The FinancialsDuring 2003, bankers priced 25 IPOs from the financial sector. The deals included banks, financial specialty companies, insurance firms, real estate investment trusts (REITs), and other interest rate-sensitive stocks.

The busiest segment was insurance IPOs. During 2003, bankers priced eight insurance companies – with four going public in December, alone. On January 8, 2004, all eight closed above their initial offering prices, and the average gain per insurance IPO was 43.7 percent.

At press time, three insurance companies are in the IPO pipeline. They are: Assurant, Bristol West Holdings, and ProCentury.

During 2003, bankers priced seven REITs, with two going public in December. At press time, there are six REITs in the IPO pipeline. The largest one is the Affordable Residential Communities offering, which is expected to raise $450 million.

With interest rates at a 45-year low, investors have a taste for high-yielding securities. One such instrument was this week’s IPO, K-Sea Transportation Partnership. The company intends to pay a dividend of 50 cents per quarter or $2 annually per unit, according to its prospectus. The deal was priced at $23.50 per unit to yield 8.5 percent.

The PharmaceuticalsDuring 2003, bankers priced seven pharmaceutical IPOs. At one point in the late fall, most were selling below their initial offering prices. However, on January 8, 2004, four pharmaceuticals closed above their offering prices, and the average gain – yes, gain – per 2003 pharmaceutical IPO was 10.5 percent.

There are nearly a dozen pharmaceutical IPOs in the pipeline. The aftermarket recovery of the 2003 pharmaceuticals explains why the filings keep coming.

The Internet IPOsDuring 2003, bankers priced five Internet IPOs with four going public in December. On January 8, 2004, four of the five Internet IPOs closed above their initial offering prices, and the average gain per Internet IPO was up 35.5 percent each.

There is one Internet IPO in the pipeline, salesforce.com. But the big focus has been on the pending Google IPO.

Here’s the buzz: Goldman Sachs and Morgan Stanley are said to be the co-lead managers of the Google deal. Citigroup, Credit Suisse First Boston, J.P. Morgan, Thomas Weisel Partners, and WR Hambrecht are reported to be the co-managers. The Google IPO is estimated to be $4 billion in size.

Some Wall Street experts feel that the Google IPO could pull the IPO market out of its doldrums. As yet, the company has not filed for an IPO. That makes all the above talk on Google just talk.

However, there is no reason to completely discount Wall Street’s buzz. The evolution of an IPO goes through several stages, and it starts with talk. Then comes hope – when companies file plans to go public with the Securities and Exchange Commission. "Hope" because not all IPOs make it to market.

Reality comes next. That is when the proposed offering terms are set, which sends a message that underwriters are getting ready to move the deal forward to the final step in the underwriting process – pricing. Here is where the company’s hope have the chance to come true. The deal is priced one evening and starts trading the next morning.

Insiders are tight-lipped. In a roundup of the usual suspects, most professionals at Goldman Sachs, Morgan Stanley, Citigroup, Credit Suisse First Boston, J.P. Morgan, Thomas Weisel Partners, WR Hambrecht and, even, Google itself, declined to comment. A few others did not return calls.

As for waking up the IPO market?

Take a look at what has been happening in the Land of IPOs. In 2003’s fourth quarter, bankers priced 53 IPOs. That was the busiest IPO quarter since 2000’s fourth quarter.

And 2004’s first IPO was priced during the year’s first week. The last time that happened was in 1998.

With or without a Google IPO, the only thing left to say is: “Welcome back, IPO market.”