Bull market in IPOs lures offbeat filings.

L.A. COUNTY - More than ever, the option of "going public" appears open to Southland firms - and more than ever, company owners are availing themselves of the opportunity of issuing stock to the public.

In the last year, such diverse local companies as a three-outlet restaurant chain (Jerry's Famous Deli Inc.), an automobile engine rebuilder (Bonded Motors Inc.), operators of an annual motorcar race (The Long Beach Toyota Grand Prix) and a $10 million-in-sales toy importer (Jakks Pacific Inc.) have gone public, or filed plans to do so.

Clearly, going public is not for high-tech companies only. In all, 24 Los Angeles companies since April 1995 have succeeded in raising capital through initial public offerings.

The new, wider breadth of companies going public suggests there is a huge pool of local enterprises which could go to the public equities market - and some bankers and lawyers say there are fundamental reasons this IPO boom could be merely the first wave in a larger, sustained increased capital quest for local companies.

"There has been a change in the market. We have seen companies successfully go public that are not high-tech. The mutual funds have shown a receptivity for smaller stocks," said Mary Ellen Kanoff, partner with law firm Latham & Watkins in downtown Los Angeles. "And there is a lot of money in mutual funds these days."

Allure of strong ratios

The primary cause of the local IPO surge on the sell side are the strong price-earning ratios on Wall Street - the average ratio of the Standard & Poor's 500 is 19.8 (a stock trading for $20 a share, and having earnings of $1 per share, trades at a ratio of 20). This is well above historical norms, and gives owners enormous returns for selling their companies.

A drop in price-earning ratios could flatten the IPO market, say experts - and cut the legs out from under investors who bought.

One major factor of high ratios is lower interest rates, which decrease the yield of equities major investment option - bonds.

How long rates will stay down is anybody's guess, but so far there are no real signs of sustained inflation, usually thought of as a precursor to a secular trend of higher inflation.

Not only have Americans been pouring vast sums of cash into mutual funds, but increasing numbers of the funds are dedicating assets to small companies and IPOs.

"We are seeing a lot more activity in the micro-cap (companies with a market capitalization of under $100 million) market. There are many more mutual funds into small stocks than ever before, and they have more money," said Steven Richter, director of research for the downtown-based Wedbush Morgan Securities Inc.

The scale of mutual funds completely dwarfs IPOs. There is more than $1.4 trillion in equity mutual funds - yet the IPO boom of 1996 is on track to raise a relatively minuscule $29 billion. Clearly, any movement towards new stock offerings by fund managers will sustain an IPO surge for a long, long time, say industry veterans.

Some say demographic changes, such as the aging of baby boomers, will lead to a semi-permanent higher savings rate and flow of money into mutual funds.

Mortality intrudes

"Baby boomers are becoming aware of their mortality," said Harold Harrigian, at the downtown Los Angeles-based brokerage Crowell, Weedon & Co.

Other IPO booms ended when the market cooled a bit, and too many IPOs flopped, said Leib Orlanski, nameplate partner at the Beverly Hills-based Freshman Marantz Orlanksi & Cooper. "But this time, we are seeing higher quality IPOs. I sense the economy (in California) has been so tough for so long, that the companies we are seeing have proven they can survive in lean times, and now are ready to grow."

Even with the large number of IPOs of the last 18 months, the overwhelming majority of Los Angeles-based companies are not public.

There is a virtually inexhaustible pool of local companies that are at least large enough to go public. According to the latest available figures, there are 4,891 companies with 100 employees or more (employees being a rough proxy for the minimum-size company that could seek access to the IPO market), according to Jack Kyser, of the county Economic Development Corp. Less than 400 of these large-enough companies are public today.

Should they seek to go public?

"We found the cheapest source of financing was in the public arena," said Paul Sullivan, treasurer at Bonded Motors Inc. in South Central L.A., a 200-employee company which remanufactures automobile engines.

There could hardly be a less "sexy" story than Bonded Motors and its factory full of rebuilt Chevy engines and other motors, yet the company recently completed a very successful $6 million public offering, and used the Torrance law firm Petillon & Hansen as counsel.

Less hassle than expected

"We sent copies of our business plan to about 40 underwriters, got back about six or eight responses, and then we went ahead with it," said Sullivan. He also said he found the process of the IPO neither as time-consuming or expensive as he was warned. Nor does he find the public-reporting requirements onerous.

After going public and raising cash, banks and others became more forthcoming in offering capital - at lower rates, said Sullivan. "That was another plus."

Tom Weinberger, managing director for corporate finance at brokerage Sutro & Co. in West Los Angeles, said that a company can be in a prosaic industry and go public, if there is a good story to tell about growth and management is in place.

"If you can consolidate in a fractionated industry, and you have a good management team, then 'sexy' might not be an issue," said Weinberger. "But investors in an IPO do want to see a growth story."

If a local company does want to go public, it needs to venture far afield. There is a healthy array of local investment bankers and lawyers to help a company along the way.

Among law firms, frequently mentioned are Gibson, Dunn & Crutcher, O'Melveny & Myers, Irell & Manella, Freshman Marantz, Latham & Watkins, Riordan & McKinzie, Skadden Arps Slate Meagher & Flom and Petillon & Hansen.

Many local brokerages, such as Crowell Weedon, H.J. Meyers and The Boston Group, are also able to take companies public, as well as local branches of national brokerage houses.