Splunk Inc. (MM) (NASDAQ:SPLK)
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3 Years : From Aug 2011 to Aug 2014
June and July are normally peak summer months for initial public offerings in the U.S., but investors and bankers should prepare for a slower flow of deals given the chilly market climate.
Bankers are scaling back their expectations for the number of IPOs they will complete in the third quarter, companies are uncertain they will be able to fetch the prices they want when going public, and investors are jittery about buying new stocks.
"Most people on the Street have been forced to re-evaluate the timing of their IPO backlog. I don't think we will see things fall out of the backlog, but we will most likely see things get [delayed]," said Mary Ann Deignan, head of Americas equity-capital markets at Bank of America Merrill Lynch. "That's concerning, because June and July can normally be windows of opportunity, and August tends to be so slow. And after Labor Day this year, we will be in a pre-election environment, which tends to add uncertainty to the market."
With no marketing road shows in recent weeks, the earliest anyone can expect to see a deal price would be in the second half of June--and that is only if some road shows launch this coming week, said Scott Cutler, head of listings in the Americas for New York Stock Exchange parent NYSE Euronext.
"The potential of market volatility affecting pricing is the biggest problem and the most major concern," Cutler said. "Decisions are being made right now as to timing of launches."
That is in sharp contrast to the optimism Wall Street and investors displayed in April, when the broader market was still on the rise, volatility wasn't climbing, and a software company called Splunk Inc. (SPLK) delivered the strongest first-day performance in a year, doubling on its debut.
A confluence of events that followed in May turned that sentiment negative. Increased concern about Europe's debt crisis and some worrisome U.S. economic data pulled the broader markets down. Friday, disappointing monthly jobs data were released in the U.S. for the third-straight month, while the unemployment rate had its first increase in nearly a year; the Dow Jones Industrial Average reacted by dropping into negative territory for the year. Meanwhile, volatility as measured by the Chicago Board Options Exchange's VIX--the so-called fear gauge--rose to its highest level since late December.
Volatility and declines in the broader markets are always toxic to new stocks, which are considered higher-risk investments. But the Facebook Inc. (FB) factor has been heaped upon this backdrop. The social-media company's much-anticipated deal turned out to be a disaster for most investors, with the stock down nearly 27% from its IPO price in recent trading.
When such a large deal doesn't work, it becomes harder to bring out others. There hasn't been another new stock launched since the company went public May 18, and there aren't any stocks on the calendar for the coming week.
"Retail confidence is at a real low point, and the Facebook debacle didn't do anything to help that," said Peter Kies, co-head of equity capital markets at R.W. Baird & Co.
While Kies expects IPO issuance to slow a bit in the months ahead, he expects some companies still will be able to debut.
"There is going to be continued interest in true-growth IPOs, in companies that are growing fairly rapidly. But the plain-Jane, nothing-special companies that just want to go public for liquidity reasons or for their shareholders to exit are going to have a harder time for the foreseeable future," he said.
-By Lynn Cowan, Dow Jones Newswires; 202-257-2740; firstname.lastname@example.org