Tumbling stock markets over the past few weeks have caused US IPO plans to be pulled or postponed - but analysts say the result will be a more rational market for companies going public. Investors are jittery about initial public offerings (IPOs) as the major US stock indexes have fallen about 8 to 10 percent from their recent peaks.
Over the past week, real estate investment trust LNR Capital Corp filed with regulators to withdraw its plan for a $750 million IPO and Seattle coffee firm Tully's Coffee postponed its flotation, citing volatile stock market conditions.
CCS Medical, owned by private equity firm Warburg Pincus, and Cumberland Pharmaceuticals Inc also postponed IPOs this week, according to Dealogic. Neither companies returned calls to confirm that.
Other recent IPOs are below their issue price, such as private equity giant Blackstone Group LP, which started trading in June at $36.45 but on Friday was trading at $24.13, and hedge fund Fortress Investment Corp, which went public in February at $18.50 but on Friday was trading at $17.64.
"The problem that you have with this market is the unknowns really outweigh the knowns," said David Menlow of IPOfinancial.com, based in Millburn, New Jersey. "The IPO market does not prosper well in market conditions like that."
That results in a "self-cleansing process," said Menlow, and when companies do float they will be at lower prices than they originally filed for. "What that means is that the underwriters are being very expeditious about readjusting the valuation models for these stocks," Menlow added.
Some IPOs have fared well despite the market turmoil, with software maker VMware Inc soaring 76 percent in its debut on Tuesday. Its shares, which floated at $29, were on Friday trading at $54.57. Other names expected to do well if they come to market include credit card network Visa, Menlow said. Visa has outlined plans to float a majority of the company.
"If that deal does manage to register and come public in the fourth quarter it is one that will be pretty much impervious to market conditions, similar to VMware," he said. Shares in Visa rival MasterCard Inc are trading at more than triple their May 2006 IPO price.
Francis Gaskins, president of research firm IPODesktop.com, also thought the recent fall in the market would cause a harder look at firms trying to go public. "It will knock out the companies that aren't close to break-even," said Gaskins. "This is very rational. It means that people are looking very carefully at the income statements."
August is typically quiet for IPOs as bankers and investors go on vacation, and no major offerings are expected until after Labour Day, a holiday in the US and Canada, which falls this year on September 3. Still, there have been more IPOs this August so far than for August 2006, according to research firm Dealogic. US listed IPO's totalled 17, or $5.2 billion in value, so far for August 2007, compared with August 2006's 9 IPOs raising $2.1 billion.
There are 128 US IPOs in the pipeline according to Dealogic, with an expected value of $25.4 billion. But analysts don't expect some names to go ahead as planned. "There are a lot of companies in the pipeline," said Gaskins. "I think a lot will IPO - but they may be at lower prices, which is normal."
There are also question marks over some private equity names. KKR & Co LP, the prominent US buyout firm that pioneered the leveraged buyout industry, filed with regulators in July to raise up to $1.25 billion in an initial public offering. Och-Ziff Capital Management Group LLC, a multi-strategy investment fund with about $26.8 billion under management, filed for an initial public offering in July.