By Lynn Cowan
Times are slow when it comes to issuing stock, and it isn't just
IPOs that are feeling the effects.
Follow-on deals--when new shares from existing public companies
are sold to the public--have experienced a decline this year, both
in numbers and in the amount of money raised, according to data
from Ipreo, a capital-markets research firm. Follow-on offerings
can include shares being sold by insiders, such as venture capital
or private-equity shops, or from the company itself. What are known
as secondary offerings, by contrast, involve only insiders selling
stock.
The number of follow-ons is down 15.3% this year, while proceeds
raised are 21.9% below last year's pace, by Ipreo's count. The
largest amount raised this year was the $6 billion brought in
through American International Group Inc. (AIG) shares sold by the
U.S. Treasury in March. The U.S. sold another $5.7 billion worth of
shares in a May offering. In the first six months of 2011, AIG was
also the biggest follow-on issuer. The Treasury sold $8.7 billion
worth of shares in May of last year.
The Treasury took a majority stake in the insurer in 2008 as
part of its Troubled Asset Relief Program and is selling its
holdings to recoup taxpayer dollars that helped bail out the
company.
Other follow-on offerings this year have spanned a range of
industries, from discount retailer Dollar General Corp.'s (DG) $1.6
billion raise in June to pharmaceutical developer Corcept
Therapeutics Inc.'s (CORT) $47 million raise earlier this week.
Follow-on offerings are sensitive to broader market conditions,
and the volatility and market declines experienced this year
haven't produced the ideal climate for stock sales. But, unlike the
IPO market, which came to a halt in the five weeks following
Facebook Inc.'s (FB) disappointing debut, nearly 50 follow-ons were
still able to launch. Follow-ons are perceived as being less risky
than IPOs, since the issuers already have a history of earnings
reports and stock-trading patterns.
"People still are looking for opportunities to make money. They
are looking toward names they are more comfortable with and that
have a track record of performance," said David Hermer, head of
equity-capital markets for the Americas region at Credit Suisse
Group.
That isn't to say the follow-on market isn't feeling pressure
from investors, primarily comprised of institutions such as pension
funds and mutual funds. The average price discount on deals widened
to 8.7% in June from 6.7% in May, according to Ipreo, although on a
year-to-date basis, the average discount of 6% is actually lower
than the 6.4% seen at this same point in 2011, thanks to wider
discounts earlier in 2011.
"As more gets done, one would hope the discounts would come back
in," said Steve Gillette, a partner at law firm Jones Day's Silicon
Valley office.
Write to Lynn Cowan at lynn.cowan@dowjones.com.