Going public is back in fashion. On 26 January, not one but two media companies were listed on the New York Stock Exchange, ending a three-year drought for media-centric flotations in the US. This sparked giddy headlines about the return of the initial public offering (IPO) as an avenue for raising bucketloads to fuel expansion or simply cash out. Adding to the euphoria was the fact that both debuts outperformed expectations: Nielsen Holdings raised $1.6bn (€1.2bn) from its stock sale, while Demand Media saw its share price skyrocket 33% that same day, giving the information provider a higher market valuation than The New York Times Co. And that is when reality sank in.

No matter how furiously Old Media tries to reinvent itself, investors are still gravitating towards tech-driven upstarts like Demand Media, a ‘content factory’ that is perfectly attuned to the digital economy that spawned it. Demand joins a phalanx of disruptive newcomers – including Netflix, the NYSE-quoted online movie-rental operation worth almost a third of Time Warner – that are in danger of monopolising investor attention and siphoning off available capital from the old guard. Indeed US-based music streaming and recommendation service Pandora hopes to raise $100m to expand internationally via an IPO underwritten partly by Morgan Stanley and JP Morgan. Documents filed in February for Pandora’s IPO reveals its apps – available across a multitude of mobile platforms – have been downloaded more than 50 million times. Just wait for Facebook, Twitter, LinkedIn, Zynga, Groupon, Skype and Hulu to join the IPO fray. Nielsen, as a venerable TV ratings company, might seem like an anomaly here – except that its own growth is tied to measuring this very behavioural shift towards social media, cheap online gratification and consumption on the go.

If traditional publishing and entertainment companies are banking on a halo effect from Demand Media’s success, they better wise up. Even with the Dow roaring back, their brand of media is just not what drives the financial markets these days. To the dismay of newspaper purists, Demand uses algorithms to figure out what information people are searching for online and how much any given article might be expected to earn from web-advertising dollars over a five-year lifespan. It then deploys its 13,000 freelancers to churn out articles and videos that will pop up quickly on Google searches. The editorial filtering process has become computerised, the creative act itself reduced to a assembly-line commodity. And this is where the money is.

Even though its freelance army is paid a pittance, Demand has yet to turn a profit. Such a loss-making proposition might prompt flashbacks to all those ‘dot-bombs’ that went public at the turn of the millennium, all promising a new economic paradigm before flaming out spectacularly in search of actual revenues.

But market conditions have clearly changed over the ensuing decade. Web communication tools are now second nature for so many people, as are e-commerce, communal gaming, cloud- based streaming of entertainment and online flash sales. Just ask Nielsen for the numbers.

“We’re in an entirely different place as an industry than we were 10 years ago. I very much doubt we’ll see the same mistakes made again,” suggests technology pundit and Wired co-founder John Battelle in a recent blog post entitled ‘No, In Fact, We Haven’t Seen This Movie Before’. This is not another bubble in the making, he insists, nor a case of greed- induced collective amnesia. “Back in the dotcom era, most retail internet investors were buying on the come, on promises that the hand-waving and affirmations of web 1.0 entrepreneurs would magically come true. Almost none of the companies that went public back then could boast the metrics today’s private winners do.”

Compared with the late 1990s, says Battelle, the companies now lining up to offer themselves to the public look healthy, well positioned and very, very real. As such, their valuations are not so obviously over the top. The list of potential IPO candidates is indeed impressive (see chart), both in terms of their volume and the strength of their balance sheets.

Although 2010 was regarded as a watershed year for IPOs with as many as 478 companies listing, only General Motors raised more than $1bn going public in the US. By comparison, Oslo’s exchange attracted two IPOs that each topped €1bn (insurance company Gjensidige and Statoil’s fuel and retail arm). This shift in the financial balance of power helps explain why stock markets themselves seem to be in grip of merger fever. Deutsche Börse is in talks to take over the New York Stock Exchange in a $10bn deal that would also give it control of Euronext NV. At the same time, the London Stock Exchange is the process of buying Toronto’s TMX Group in order to claw back lost market share and create the largest exchange in terms of company listings.

Both mergers are perfectly timed to capitalise on an expected surge in IPO activity. Paul Bard, vice president at IPO research specialists Renaissance Capital, notes: “We could potentially see half a dozen billion-dollar offerings in 2011 by virtue of these large private-equity backed companies, some of which had delayed their IPO plans previously.” Those numbers refer to the US, but the same will likely be true of international exchanges.

Prada, which has tried to float numerous times, is tipped to do so in Hong Kong this year. This would not only help release it from a debt burden estimated at €1bn, but position it to expand in its biggest growth markets in Asia. Analysts believe the Prada name will command a higher price there than in Milan or London. China, after all, is on track to be the biggest luxury market in the next five years. The strength of those BRIC economies is not the only motivating force. Helping to stoke up demand is the very financial crisis that helped depress the world’s stock markets. With banks not lending, and base lending rates at such low levels, IPOs have emerged as an attractive investment alternative. “The paltry or non- existent deposit rates on offer have in effect created an artificially high demand for assets which offer decent yields and relative security on capital,” observed Prime Markets in its recent special report on IPOs. “On the corporate side, selling shares to institutional and retail investors has turned from a boom-time luxury-funding source into the only viable vehicle for raising serious cash.”

While technology remains the hottest IPO sector, companies operating in life sciences, natural resources and financial services are also filling the pipeline. Among the blockbusters is Kinder Morgan, the largest IPO in the oil and natural-gas sector in almost 10 years, which started trading mid-February, and healthcare giant HCA, which is expected to seek $4.6bn. Also generating excitement is Glencore International, the Swiss commodity trader that is considering a $10bn IPO in the spring, possibly as a dual listing in London and, of course, Hong Kong.

That Glencore should risk the financial scrutiny that comes with going public speaks volumes about the pressure to open one’s books. Publicly-traded companies are required to report revenue, profits (or losses) and executive compensation. Glencore’s founder Marc Rich says it is “much more convenient” not to be a listed company because “you don’t have to give information” but cedes that Glencore feels it has little choice. “Transparency is much more important. This limits your business opportunities somewhat but it’s just a new strategy you have to follow.”

The same is true of Facebook. As much as CEO Mark Zuckerberg insists he is in no rush, a listing may be unavoidable this year since it no longer enjoys the full benefits of corporate privacy. The SEC requires companies with 500 or more shareholders to make financial filings as if they were a public company anyway. That threshold appears to have been crossed as a result of a $1.5bn equity offering launched through Goldman Sachs in January, stirring up frenzied interest across the private-capital exchanges.

Facebook has an implied value of $50bn as a result of repeated infusions of late-stage capital from the likes of Russia’s DST. Other companies such as Groupon, Zynga and LinkedIn have also had no trouble raising massive sums privately. For this elite, going public will be more of an awkward rite of passage than an economic necessity. “For many of these companies, an IPO seems more like a bar mitzvah,” an anonymous social media investor told The New York Times. “It’s not very life-altering in the end, but rather something to get through.”

For everyone else, IPOs still represent the only transformative gateway to overnight riches. “The most successful startups like Facebook have access to private funding that the vast majority of companies simply don’t have,” notes Warren Lee, a partner at venture-capital firm Canaan Partners. “Maybe only a dozen companies have that ability.”

Making life tougher for the next level of start-ups is the knowledge that the mergers and acquisitions market is drying up. Not so long ago, embryonic technology outfits practically built in a $100m acquisition by a Microsoft, Google or Yahoo as part of their business plan. But although every so often there is a headline announcement such as AOL’s plan to buy online news and opinion site Huffington Post for $315m, those deals have become increasingly rare.

“The M&A market is constrained. There are a lot fewer companies willing to pay top dollar. Those that are acquiring are being very financially disciplined,” says Lee. “This leaves a large number stuck in the middle ground: they are doing well, but not well enough to grab investor attention, either because they are not growing fast enough or because the space they operate in is not growing rapidly. They could be profitable, generating $15m-$20m and growing by 15%-20%, but for them there is no easy path to exit.”

Even for the likes of Demand, the hard part is yet to come. “There are ways to manipulate a successful IPO by managing the supply and demand of shares to get higher prices. We’ll know far better in six months,” says Lee. “For too many companies, going public is seen as the end of the road. But it is just another step in the journey. You should only go public because you feel there’s a lot more business left to build.”

Greenhorns that are not geared up for the long haul will end up as roadkill. Between 1997 and 2008, the number of companies on US stock exchanges declined 39%, from 8,823 to 5,401, according to Grant Thornton. So, as strong as the IPO market is likely to be this year, that spree of debutantes won’t make up for the number of companies that were delisted in the past decade. Growing up is hard to do.

STOCK CHECK

The pipeline of companies planning initial public offerings is crammed, but as a rule of thumb, no more than a third of companies that signal their intent to go public end up doing so in any given year. Th e rest either abandon their IPOs because of adverse market conditions or delay them in the wake of external events.

Russian coking coal producer OAO Koks has postponed its $500m listing on the London Stock Exchange citing Middle East unrest. The turmoil also cast a pall on another $2.8bn of planned Russian share sales in coming weeks amid fears that the tensions might dampen investor appetite and with it IPO valuations. Metalloinvest, the Russian mining and metals giant controlled by Alisher Usmanov, might put its own billion-dollar IPO on hold for similar reasons.

Such uncertainties notwithstanding, much of this year’s IPO activity will be led by the BRIC economies, together with companies from the US and Israel. Last year, it was the Hong Kong, Shanghai and Shenzen exchanges that commanded the most money raised from IPOs, including two of the five largest in history: Agricultural Bank of China ($19.2bn) and Asian life insurance giant AIA ($17.8bn).

In Europe, London was the exchange of choice for IPOs, but not far behind was Warsaw. The pendulum may swing back to the US in 2011. Many Chinese companies, it appears, are seeking out the cachet of a NYSE or NASDAQ listing despite the increased costs and regulations that now come with going public in the US following the Enron accounting debacle.