This week's battering of the stock markets not only slammed companies once thought of as stable, blue chip stocks, such as financials. The market were also merciless toward the stocks of newly public companies, as investors fled to the safest securities they could find, further putting off the long awaited recovery of the initial public offerings market.
So far this year, according to IPO Index, a benchmark by Connecticut-based research firm Renaissance Capital that tracks US IPO's from the past 24 months, IPO stocks are down nearly 29 percent. That compares with the Standard and Poor's 500 decline of nearly 15 percent year to date. A week ago, the IPO Index was down only 25.3 percent.
"Investors found it safer to throw them out and move to higher ground," said Kathleen Smith, chairwoman of Renaissance Capital, of the battered IPO stocks. Newly public stocks are typically more volatile than the broader market because there are relatively few of their shares in the market and because of investors' lack of familiarity with them.
The current year has only seen 30 IPOs in the United States launch, raising $26.7 billion in proceeds, making it the slowest IPO market in five years, with only about a quarter of the activity at this point last year, according to Thomson Reuters data.
Of those 30 new issues, only six have had positive returns since their launch. Two of those top performers, credit card operator Visa Inc, up 58 percent since its March debut, and risk consultant RiskMetrics Group Inc, once a unit of J.P. Morgan Chase and Co and up about 39 percent since January, were already well known to investors.
Among the most volatile stocks has been GT Solar International Ltd, the maker of solar equipment, which launched a $500 million offering in July. On Friday, it was down about 28 percent from its launch but had been down as much as 48 percent earlier in the week. This week's wild ride on the markets is likely to further delay a resurgence in the IPO market, which has been moribund since last November, Smith said.
"Issues can't be done when the markets are collapsing," said Smith. In what would be the first stock flotation in the United States since early August, Fluidigm Corp, a California-based provider of systems to optimise laboratory functions, had planned to price its IPO on Thursday but has had to postpone and will to try again next week.
The biggest problem for prospective offerings in a market this rocky is the difficulty of getting their stories out to investors, analysts said. "Fewer people are willing to take on new positions when they see their core stocks being eviscerated on a daily basis," said David Menlow, president of IPOFinancial.com.
And their relatively thin trading makes matters worse. "The illiquidity of smaller deals makes them be hard to sell because they are so much more volatile," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald.
The average newly public company only makes about one third of its shares available for public trading in its IPO, typically rising to half within two years, as it builds a shareholder base, Smith estimates. The calendar of upcoming IPOs is likely to stay thin for awhile. As of now, in addition to Fluidigm, the only other IPO on the calendar is a planned $350 million offering by Texas-based environmental solutions provider Safety Kleen, expected to price the week of September 29.
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