For all the talk of a renascent market for initial public offerings following five successful deals, there are fewer companies in the pipeline. April has seen a flurry of IPOs by Chinese video game maker Changyou.com Ltd, language software maker Rosetta Stone Inc and Bridgepoint Education Inc, making it the busiest month since July.
Yet, despite the success of those IPOs, (four of the five are now trading above their offering price) there has only been one new IPO registration and far more cancellations, dashing hopes that more companies would be tempted to try their luck.
The paucity of new IPO registrations also comes despite the 8 percent return so far this year of the FTSE Renaissance IPO Index, which tracks the stocks of the 200 most recent IPOs, compared to the S&P 500's drop of 4.6 percent. "Companies don't see the markets as being tremendously active, they may not want to share that information with competitors, and they don't think they'll get the valuations they want," said Linda Killian, principal with Connecticut-based research firm Renaissance Capital, explaining the lack of regulatory registrations.
So far, there have been four IPOs on a US exchange this year, and only four new IPO registrations, while 27 deals estimated to raise $4.8 billion have been pulled, according to Thomson Reuters data. Some of this year's cancelled deals include the $750 million IPO by oil pipeline fittings maker McJunkin Red Man Corp and former US Vice President Al Gore's Current Media Inc.
Despite the dropouts, there are still 104 companies registered for an IPO on US exchanges, in deals estimated to raise $18.6 billion. But nearly half of those are more than a year old, meaning they are less likely to attempt an IPO. Part of the problem has to do with the reduced prices that are the norm now, analysts said. "To get pipeline moving, we really need to willingness among venture capitals and private equity firms to reprice," Killian said.
"Successful IPOs beget other successful IPOs - the next shoe to drop will have to be some of these venture deals," Killian said. Bridgepoint Education's IPO earlier this month broke an eight-month streak without a venture-backed deal, but IPOs remain a difficult exit route for portfolio companies.
"The absence of new filings tells us that there has been a much lower amount of venture capital," said Scott Sweet, senior managing partner of advisory firm IPO Boutique. "Investors are not willing to take on companies unless they set themselves apart from those growing mold in the pipeline."
In the current environment, only growing, profitable companies with little debt will be able to get their IPOs off the ground, and few meet that profile, Sweet said. The pipeline is not a foolproof gauge of upcoming IPO activity. Many companies could be readying for an IPO without registering and the time between filing and pricing a deal is often as quick as three months, or even less. Changyou.com, for example, priced its deal about two weeks after filing.
When the market does reopen- and analysts and bankers think that won't happen until late this year at the earliest - deal flow might be lower than what investors have come to think of as normal, meaning thinner pipelines. "If the market IPO comes back in a meaningful way - it doesn't have to be like it was hopping in the 90's, but if we get three to four deals a month, that will be a positive sign for overall economy," Killian said.