Initial public offerings of stock have finally started to show signs of thawing after last month’s Facebook fiasco froze the U.S. IPO market, but bipartisan groups in Congress say the IPO process is in dire need of reform to protect retail investors from the sophisticated market’s gyrations.
Four companies have announced terms and a fifth has revived a deal, Renaissance Capital reported Thursday, saying that such “icebreaker” IPOs have historically seen uniformly excellent returns. The first IPOs to price after a period of inactivity tend to be attractively priced growth companies, according to the Greenwich, Conn., global IPO investment advisor’s research.
“From a mini-surgical camera maker to a fertilizer ingredient supplier, the companies were notably diverse, spanning eight different sectors and a wide range of deal sizes,” Renaissance reported. “Growth rates were generally high though, and most were profitable and of reasonable scale. The forward P/E ratios ranged from 6x to 27x, but a majority offered about a 20% discount to their peer groups and most priced at less than 15x.”
However, U.S. Rep. Darrell Issa, the California Republican who has made a name for himself by accusing Attorney General Eric Holder Jr. of obstructing an investigation into the Fast and Furious gun operation, has written a letter to Securities and Exchange Commission Chairwoman Mary Schapiro demanding a rules review of the IPO process.
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“The Facebook IPO taught us that, at a minimum, the IPO process suffers substantial flaws,” Issa wrote in his 15-page June 19 letter to Schapiro. “In fact, it appears the entire IPO regulatory framework, based on an outdated Securities Act of 1933, fails to provide a market-based solution to IPO pricing.”
On the Democrats’ side of the aisle, Sen. Jack Reed, the chairman of a Senate Banking securities subpanel, on Thursday held a hearing to examine whether the IPO process works for ordinary investors.