IPO VIEW-Slow year ahead for U.S. IPOs
(bill might have to get a real job , oops, kiddin !)
Fri Dec 30, 2005 03:43 PM ET
By Scott Malone
NEW YORK, Dec 30 (Reuters) - After a relatively slow year for U.S. initial public offerings in 2005, underwriters and analysts are looking ahead to 2006 with modest expectations.
"It will be a challenging environment overall in the equity markets," said Matt Johnson, managing director and global head of equities syndicate at Lehman Brothers Holdings Inc. (LEH.N: Quote, Profile, Research) "We will continue to deal with inflation risk and the risk of higher (interest) rates. As that relates to the issuance market, that means we're probably in for the same type of year we had in 2005."
U.S. common stock IPO volume ended the year off 13.8 percent, with 226 offerings raising $38.71 billion, according to data provider Dealogic. Underwriters attributed the decline to a lackluster performance of the U.S. stock markets, as well as a boom in mergers and acquisitions, in which companies sold themselves privately rather than in the public markets.
FIRST IMPRESSIONS COUNT
One factor that weighed on 2005 volume was that a number of poor-performing IPOs came public early in the year, taking a toll on investor confidence. Seven companies offered in February have seen their share prices fall by 40 percent or more, with the worst performance of that month coming from online retailer Odimo Inc. (ODMO.O: Quote, Profile, Research) , shares of which have fallen by more than 80 percent from their $9 offer price. That made Odimo the second-worst performing U.S. IPO of the year, after Refco Inc. (RFXCQ.PK: Quote, Profile, Research) which collapsed into bankruptcy amid charges of improper accounting and was delisted from the New York Stock Exchange.
"Investors let their guard down in February, and they tightened it up as the year went on," said Francis Gaskins, president of IPO Desktop, a Marina del Rey, California-based independent research company.
Analysts suggested that a few strong performers early in 2006 could increase demand.
Among the more notable IPOs on next year's calendar are credit card association Mastercard Inc., which aims to raise $2.45 billion; defense contractor SAIC Inc., looking to raise $1.73 billion; and Chipotle Mexican Grill Inc., a subsidiary of McDonald's Corp. (MCD.N: Quote, Profile, Research) , which plans to raise $130.4 million.
The NYSE itself is also expected to offer additional shares in a follow-on offering early in 2006, after it closes on its acquisition of Archipelago Holdings Inc. (AX.P: Quote, Profile, Research) , transforming the 213-year-old exchange into a public company.
SECTOR VIEW
The sectors with the biggest backlog heading into 2006 include the finance industry, with 45 IPOs expected to raise $5.45 billion; oil and gas, with 7 companies due to raise $2.49 billion, and real estate and property, with four deals due to raise $1.84 billion.
"With the interest rates up, there will be fewer REIT (IPOs)," said Gaskins of IPO Desktop. That's because many recent REIT IPOs were mortgage REITs, which have seen demand for the services decline in the United States as interest rates rise and fewer property owners look to refinance.
Analysts also said they expect waning demand for IPOs of companies developing new drugs. In the final weeks of 2005, Prestwick Pharmaceuticals Inc., Voyager Pharmaceutical Corp. and AlgoRx Inc. all withdrew their IPO plans, finding little investor interest.
That, said Tom Taulli, an IPO analyst and founder of DealflowSearch.com, of Newport Coast, California, is because investors are showing little inclination to wait years as these companies secure approval of and commercialize their products.
"Investors don't want to wait around to make returns," Taulli said, adding that many early-stage drug company IPOs are "looking for some growth capital so they can come out with a drug in five years. Investors are not willing to make those sorts of bets right now." |
