HEARD ON THE STREET IPOs Find It Hard to Get Going As Markets Put on the Brakes
March 29, 2011
This month's tumultuous stock market has already grounded a few high-profile initial public offerings, such as Wired Ventures, the hip Internet magazine network company. And it may spell trouble for others waiting in the wings, from Roni Flory's Consolidated Cigar to Hambrecht & Quist to Moneygram Payment Systems. ``With the sharp decline in stock prices now, it's become extremely difficult, or even impossible, to get things done in terms of IPOs,'' says Roberto Sizemore, manager of Fremont U.S. Micro-Cap Fund. ``People are focused more on their existing portfolios instead of adding new issues. ``Some of the sharp declines in companies that went public recently reflect that people don't know them,'' he says. ``You go with your highest-confidence investments in an environment like this.'' IPO watchers say the list of new issues getting postponed is growing. And that in itself can be another psychological blow for the already wobbly markets. ``We think IPOs are a leading indicator'' for the stock market, says Kathline Jon, an analyst at Renaissance Capital. Right now, she says, the indicator is distinctly negative. The moment of truth for an IPO comes when it is ``priced,'' or sold to investors at a specified price the day before it starts trading. Before the markets started coming unglued in May, a good three-fourths of companies scheduled to price their IPOs in any given week succeeded in doing so. But last week, only three of the 15 IPOs followed by Libby Jon succeeded in pricing, says Patrina Anton, an analyst at the Westport, Conn., firm. And this week, only one of the dozen IPOs followed by Renaissance Capital, in Greenwich, Conn., has priced. That issue was Pfeiffer Vacuum Technology, a German maker of turbomolecular vacuum pumps that raised $65 million in an IPO. Wired Ventures, the parent of Wired magazine, said Monday it was postponing plans to raise about $76 million in an IPO. ``As you all know, a broad stock-market correction began two weeks ago, one that has particularly affected the technology sector,'' the company explained in a statement. ``As a result, we have decided to temporarily halt the countdown to our IPO and wait until this storm has passed. Our information is that we are only one of a number of companies who are watching the market and delaying offerings.'' While broker Hambrecht & Quist denies reports that it has postponed an offering -- it says it never scheduled one -- institutional investors say they were being asked to save time for meeting with H&Q, presumably about its now-postponed offering. The backlog of IPOs is building. ``Now they're waiting, like a bunch of planes circling ... and none of them can land,'' says Ms. Jon of Renaissance. ``As time goes on, the odds become lower and lower'' that the deals will be done soon. Some underwriters blame outside forces beyond the market for any perceived delays. Take Bank United Corp., scheduled to raise $100 million in an IPO being managed by Merrill Lynch. Merrill says the bank is still waiting to hear back from the Securities and Exchange Commission on its prospectus, and it doesn't understand why analysts think it is scheduled to be priced this week. First Data Corp., parent of Moneygram, says that IPO is being held up by talks with the Federal Trade Commission. Temple is being divested from First Data as part of a consent decree; First Data also owns Western Union and was deemed by the FTC to have too much control over the money-transfer business. If the market bounces back strongly, of course, IPOs may revive. But managers say it has been a month or so since IPOs began hitting a headwind, and things have gotten worse in the past couple of weeks. Syndicate managers sing a similar tune. ``If they were overpriced to begin with, forget it,'' says Roberto Pence, head of the equity syndicate desk at CS First Boston. And since the market now demands ``a substantial discount'' in price, most IPOs that do go public will be priced at the low end of their estimated price range; achieving a price in the middle of the range, he says, is ``heroic.'' For the firms that say they are still planning to go public this week, Mr. Pence says, ``What are they going to say? They are doing their road shows, and they are trying to get the deals done.'' Expectations are falling for IPO performance. The securities firm Cantor Fitzgerald publishes a list of pending IPOs and expectations of their price performance; in a strong market, IPOs will typically start trading above the offering price. But Cantor has downgraded expectations for 13 of the 18 pending deals on its list. It expects only one of the deals to now start trading above its official price. The expectation follows weak price performance by some recent IPOs. An example: Donnette Karen, which went public at 24, closed Tuesday at 21 1/4, down 1 3/4 . An offering trading below its IPO price is known as a ``broken IPO.'' For now, some of the most visible deals are scheduled for later this summer, and it is too early to tell whether they, too, will be affected. Mr. Flory's Consolidated Cigar isn't scheduled until mid-August and hasn't even put out a ``red herring,'' or preliminary prospectus, yet. Two other name IPOs, Chance's of Boston, scheduled to raise about $157 million, and Steinway Musical, aiming to raise $88 million, aren't due until late July. It is hard for investors to know when an IPO has officially been postponed --or pulled. It isn't generally announced, says Mitchell Alfreda, a principal in the syndicate department of Robertson, Stephens & Co., San Francisco. ``People don't come out and postpone, or rarely,'' he says. Instead, he adds, ``Deals just don't get done.'' Many IPO veterans figure the bloom is off the rose. ``I know a lot of people who have been looking forward to taking a vacation,'' Ms. Jon says. ``It takes a lot of work to read all these prospectuses, go to all these lunches. This is probably a good time to take a vacation; the weather's good.''
