By Lynn Cowan
The end of the summer was a mixed bag for the U.S. IPO market,
with deal flow improving but new stock pricing becoming
tougher.
The pace of initial public offerings picked up in July and
August after a slow June, when only four deals made it to market in
the wake of Facebook Inc.'s (FB) disappointing performance in late
May. July and August racked up 17 IPOs, the same amount as in 2011.
Among the late-summer deals that managed to debut were soccer club
Manchester United PLC (MANU), teen retailer Five Below Inc. (FIVE),
and travel-website company Kayak Software Corp. (KYAK). No
additional IPOs are expected for the remainder of August, thanks to
the U.S. market's traditional summer holiday hiatus that lasts
until mid-September.
While the pace of deals was improved from June, pricing a deal
within the expected range became increasingly difficult as the
summer drew to a close. Of the last 10 IPOs to price, eight sold
shares below their ranges. Though major market indexes have been
trending higher during that period, and volatility remains low,
there was one factor in particular weighing on prices: Large
institutional investors, such as equity mutual funds, have been
watching investors withdraw more cash. According to Investment
Company Institute estimates, outflows began to rise beginning the
week ended July 25, when nearly $3 billion exited; in the week
ended Aug. 1, outflows rose even higher, to $6.9 billion.
"Fund flows act like the oxygen in the IPO market. As such, the
[institutional buyers] have less propensity to invest in unseasoned
companies and tend to stick with more-seasoned companies they know"
when outflows increase, said Frank Maturo, vice chairman for equity
capital markets at Bank of America Merrill Lynch.
After taking a hit on price, however, most companies' shares
were able to trade higher on their debuts, setting a positive tone
for investors. Though the best performances came earlier in July,
when Five Below priced above a raised range and still gained 55.9%
on its first day, the deals that cut their prices toward the end of
July and into August managed to rise between 1% and 19.1%.
"Over the last few weeks, the IPO market has shown mixed pricing
dynamics but stronger aftermarket trading results. There's been
real breadth to the calendar, with every major sector
represented--both are a good sign of a return to normalcy," said
Paul Wright, managing director in equity syndicate-Americas at J.P.
Morgan Chase & Co.
Write to Lynn Cowan at lynn.cowan@dowjones.com.