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New Issues May Face Investor Indigestion
By Denise Duclaux Aug 13 3:10pm ET
NEW YORK (Reuters) - The new-issues market may suffer from investor indigestion this week as Wall Street struggles to swallow a glut of newly public companies and focuses on enjoying the waning summer season.
Roughly 15 companies are slated to begin trading this week, but the outlook for them appears to be uncertain after excitement over last week's slew of deals quickly fizzled.
Twenty-nine companies hit Wall Street last week, making it the most active week since mid-November 1995, according to Thomson Financial Securities Data. Some 40 deals were expected at the beginning of the week, but many companies opted to postpone or withdraw their deals as other newly-public firms simply hugged their offering price.
``Often these investment bankers are like a kid who eats too many cookies and gets sick to his stomach,'' Christopher Ely, co-manager of the Loomis Sayles Small-Cap Growth Fund, said. ''When the window reopened everyone tried to get their deal done -- there was a huge rush of deals with a whole range of quality and excitement around them. But I think our eyes are bigger than our stomach.''
``HAD IT UP TO THEIR EARS''
More than 20 percent of all initial public offerings this year have occurred in the past 15 trading sessions, which brought three consecutive weeks of 20 or more IPOs, according to Thomson Financial Securities Data. That pace has not been seen since November 1997, the research firm said.
Although the new-issues market has been on a frenetic schedule, many newly public companies appear to be struggling to eke out a gain on Wall Street. About 40 percent of the roughly 345 IPOs this year are trading below their offering price, according to Thomson Financial.
``There is an absolute undercurrent of fatigue and saturation. We are getting the distinct impression that investors have had it up their ears,'' Irv DeGraw, research director at WorldFinanceNet.com, said. ``The retail investors were not playing last week, and the institutional investors were flipping them like mad.''
A number of companies bowed out of the new-issues race last week by withdrawing or postponing their deals. Concours Group Inc., Dynacs Inc. and AmeriGroup Corp. were among the companies that postponed their IPOs indefinitely, pointing to unfavorable market conditions as the culprit. Meanwhile, Saturn Electronics & Engineering Inc., EoExchange Inc., Interpacket Networks Inc. and Broadband Sports Inc. withdrew their initial public offerings.
THOSE LAZY SUMMER DAYS
After the recent slew of deals that hit the market, many investors are sitting on the sidelines and opting to enjoy the last few weeks of summer.
``There was a goal to get a lot of these deals done in the last couple of weeks before Labor Day,'' Ely said. ``We are getting into that quiet period of the market right before Labor Day. We had a lot of things jammed down our throats. The fact of the matter is that if suddenly some of the deals don't come out of the box hot, the next ones get harder to do.''
Analysts also see Wall Street continuing to fret over how much future corporate profits will suffer if the U.S. economy is truly slowing. Things are not expected to get better until Aug. 22, when the Federal Reserve will decide whether it plans to raise interest rates again.
``In general, I don't think people look for records to be broken in the IPO market in August,'' Kenan Pollack, money editor at Hoover's Online, said. ``You're kind of pushing things through to clear up the plate before the rush of the fall roll-outs.''
This week, WorldFinanceNet.com lists as its top picks Integrated Telecom Express Inc., whose circuits and software are designed to enhance the performance of high-speed digital subscriber line equipment; Peco II Inc., whose power systems are used by local and long-distance carriers as well as Internet services providers and wireless service companies; and WJ Communications Inc., whose radio frequency products let large amounts of traffic flow quickly over networks.
``Going into next week I see lots of uncertainty, a real mixed picture,'' DeGraw said. ``However, the odds are good that a lot of good deals are going to get mispriced, creating the aftermarket opportunity that always comes out of this. So once the dust settles, investors are going to find they have some decent opportunities out there.'' |
