IPOs struggle to recover
— -- High-profile companies continue to brave the choppy stock market and go forward with plans to go public, yet the IPO market is hardly roaring.
There's been no shortage of head-turning deals highlighting the interest in initial public offerings. Yet, with just a few weeks left this year when IPOs can get off the ground, the year is hardly shaping up to be a blockbuster.
So far this year, 114 IPOs have started trading, says Renaissance Capital, which is down from the 130 that did in the same time frame in 2010 — and that wasn't considered a notably strong year either. During November, 16 IPOs have priced, which is below the 20 that did in November 2010. And the number of companies filing plans this year for IPOs, 239, is also slightly below the 259 that did in all of 2010. "The IPO market is showing signs of life, but it's not really that healthy," says Francis Gaskins of IPOdesktop.com.
Yet, despite the fact the IPO market is not going to set any records, investors are noticing there's a:
•Groupon afterglow. Strong demand for shares of online deal website Groupon was a big signal to companies looking to raise money that the IPO window is open for the right companies, says Lee Simmons, analyst at Hoover's. Not only are Groupon's shares up 31% since the Nov. 3 IPO, but the company has an implied market value of nearly $17 billion. LinkedIn, now worth $6.9 billion, is also a "wake-up call," says Ryan Jacob, portfolio manager of the Jacob Internet fund. Executives at private companies could have a tough time getting that kind of appreciation in the private markets, he says.
•Pent-up demand and rush for the end of the year. With the year winding down, companies and their investment bankers have just three more weeks during which a deal could be feasibly done, Gaskins says. That means now's the time for any of the 149 companies in the pipeline, or those hoping to be, to get things moving, he says.
•Quest for growth. So far, the IPO market hasn't shut down despite the choppy stock market because many of these young companies have what investors crave: growth prospects, Jacob says. With the economy's growth so stagnant, investors are eager to own a piece of companies that can expand, Jacob says.
The broad stock market's health will go a long way in determining whether the IPO market can maintain its momentum. And some better returns from IPOs will help, too. This year, though, 62% of IPOs are down from their IPO prices by an average of 4.3%, IPOScoop says.
So while investors are encouraged by recent signs of life in IPOs, it's clear it's not necessarily the beginning of a major wave of activity. "I can't say we're in an IPO renaissance," Jacob says. "But recent (IPOs) are getting people's attention."
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