IPO market may be starting to warm up
Success of next week's offerings depends on larger markets
Sunday, July 15, 2012
NEW YORK -- With new public stock offerings for guitarmaker Fender and travel booking website Kayak on deck next week, there are signs demand is starting to grow for IPOs after a five-week freeze triggered by a steep decline in financial markets and exacerbated by Facebook's rocky May 18 debut.
Five companies are scheduled to go public next week alone, including Fender, Kayak and Palo Alto Networks, a maker of computer network security products. After Facebook, just four deals made it to market by the end of June, marking the longest stretch without an initial public offering of stock since August-October 2011. Stocks sank then in the wake of the U.S. debt limit showdown and a deepening European financial crisis.
The resurgence now is an indication that dealmakers are regaining confidence about raising money through IPOs. But the situation is far from rosy.
Sixty-eight companies are expected to raise $14.4 billion through IPOs later this year, according to research firm Dealogic. Last year at this time, there were almost double that amount of companies -- 135, looking to raise $23.6 billion.
"If the market stays healthy -- the overall market -- I think we will see a lot of IPO activity in the second half (of the year)," said Nick Einhorn, an analyst with Renaissance Capital. But another plunge in stock markets could make it difficult for companies to raise money by selling shares.
The types of companies that try to raise money will also affect the IPOs. Mutual funds and the other big investors who tend to buy IPO shares are less likely to be attracted to technology companies such as social networks and online gamemakers. They've shifted to business technology companies, which they consider more stable.
Stocks of several of these kinds of companies have performed well since their IPOs. ServiceNow Inc., a provider of cloud technology services to companies, went public in late June, pricing at $18, above its expected range of $15 to $17. The stock has risen 34 percent from its debut. Jive Software Inc., which makes internal social networks for corporations, started trading in December and has climbed 56 percent from its IPO price.
Well-known brands also help drum up excitement for IPOs among individual investors. There are high hopes for Fender Musical Instruments Corp., which is looking to raise as much as $160.5 million next week.
Several other consumer-oriented deals could ignite excitement later this year, said Morningstar analyst James Krapfel, citing Bloomin' Brands Inc., the owner of Outback Steakhouse; English professional soccer club Manchester United; and Coty Inc., maker of OPI nail polish and Jennifer Lopez perfume.
Krapfel said he doesn't expect much demand for deals in industries sensitive to economic concerns and weak commodity prices.
But even companies in industries considered appealing will have a hard time if the broader markets don't cooperate. Fears about the global economy stalled the IPO market in May, when economic worries drove the Standard & Poor's 500 index down 6.3 percent. In June, the index rallied 4 percent, but the IPO market tends to lag and reacts to the prior month's decline.
That's one reason experts remain wary. The S&P 500 is down 2 percent in July and a sluggish U.S. economy, slowing growth in China and financial crises in Europe might douse enthusiasm. Also, summer is traditionally a slow time for making deals because many bank executives take vacation in July and August.