Investors aren’t the only market players avoiding equities this summer. Companies are, too. Initial public offerings in the finance sector have ground to a halt due to poor market conditions, and there’s no telling when the frozen IPO pipeline will thaw.
Since July 8, when Fortune Bank shelved its $360 million IPO, a total of 11 filings in the finance sector have not gone to market, according to data from Renaissance Capital, a Greenwich, Connecticut, IPO research firm. Those 11 filings are just a fraction of the total 168 IPOs that have stalled and are waiting to be priced when market conditions improve.
“The market has been challenging, but there are a bunch of IPOs on file hoping to get done,” said Renaissance Capital principal Kathleen Smith. “There are a whole lot of companies willing to get done, even if they’re hard to get and they have to discount the price. They know what’s happening. There are 168 IPOs in the pipeline. That’s a lot. There’s a whole lot of momentum built up for companies that want to come out, and they’re going to come out at very attractive prices to get done.”
IPOs a Buyer’s Market
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When IPOs start coming out again, it will likely be a buyer’s market as investors pick and choose among the best deals. Based on the few IPOs that actually have gone to market over the last few months as the stock market performed poorly, growth companies will probably fare best.
“Perhaps some of the offerings on the calendar may come by the end of the quarter. Bankers may feel it’s an appropriate time to price them now,” said Richard Peterson, director of valuation and risk strategies at Standard & Poor’s. “In a down market, investors are reluctant to buy them. In a rising market, potential buyers are more confident about the trajectory of equity prices going forward, and earnings expectations have not been reduced for the full year of 2010.”
In the summer, the Greek debt market crisis put the equity and credit markets on edge while the housing market was in the early stages of recovery and both mortgage lenders and consumers were experiencing difficulties, Peterson noted. “One of the issues with financial IPOs is that commercial or community banks are still concerned about how they’re going to make money,” he said.
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