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The market for initial public offerings in the United States continued its precipitous fall in the third quarter, dropping to levels not seen in more than five years. The IPO market has reached near paralysis after a second quarter, which had been the worst since early 2003.
But the drop in IPO activity was even sharper in the third quarter, falling 80 percent from the prior quarter, with the outlook equally dim for the coming quarter. Only four IPOs, led by solar equipment maker GT Solar International, launched during the third quarter, yielding a total of $930 million, according to quarterly league tables data released by Thomson Reuters. It is only the second time this decade that IPO proceeds have failed to reach the $1 billion barrier.
The handful of deals that did get out of the gate have all had negative returns, as investors grappling with the jumpy markets have eschewed unknown and unproven companies. GT Solar, the period's largest IPO, valued at $500 million, is down more than 36 percent, while Texas-based Web hosting company Rackspace Hosting Inc, which used an auction to price its $187.5 million IPO, is down about 11 percent.
"IPOs have no business coming public at a time like this," said David Menlow, president of IPOFinancial.com, pinning the bulk of the blame for the market's lethargy on the volatile markets. "Investors don't see a reason to buy IPOs." But the lack of activity also reflects appropriate caution on the part of companies and underwriters, one banker said.
"What would be worse would be people aimlessly throwing companies out there and failing," said Mark Hantho, global co-head of equity capital markets at Deutsche Bank AG. Better for them to wait, he said. And they are waiting. There has been no IPO in the United States in nearly two months. The last was Rackspace in early August.
The financial storm has been brutal to the companies that went ahead with their offerings. The quarter saw a number of companies, including Kentucky coal company Rhino Resources Inc, attempt to price, only to withdraw when the market balked.
Earlier this week, California-based laboratory systems maker Fluidigm Corp became the latest company to pull its IPO after several attempts to price a deal. The paucity of deals did little to change the overall ranking of the top underwriters in the United States so far this year.
The top three underwriters so far this year remain Merrill Lynch & Co Inc - which Bank of America Corp bought earlier this month - Citigroup Inc and Goldman Sachs Group Inc UBS AG swapped places with Bank of America for No 4 thanks to its role in the GT Solar deal, rising from No 5 at the end of June.
But Bank of America and other underwriting powerhouses such as J.P. Morgan Chase & Co, which is the top global underwriter so far this year, HSBC Holdings Plc and Morgan Stanley saw no new business at all in the third quarter.
The biggest gainer of the quarter was Credit Suisse Group AG, which underwrote $380.9 million worth of new deals to land at No 9. One glimmer of hope Hantho sees is in the backlog of companies waiting to go public. "There is absolutely a backlog building up and the quality of those companies is very high - it's not a dot.com calendar," he said.

Copyright Reuters, 2008

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