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Facebook, volatile market put damper on IPO killings

By STEVE ROTHWELL Published: November 25, 2012
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/articleid/3731532/1/pictures/1892071">Photo - Fred DeMarco, a trader with Bay Crest Partners, talks into a headset during early trading Tuesday at New York Stock Exchange. AP Photo
Fred DeMarco, a trader with Bay Crest Partners, talks into a headset during early trading Tuesday at New York Stock Exchange. AP Photo

“That deal has become a textbook case of how not to do a deal,” says Quincy Krosby, a market strategist with Newark, N.J.-based Prudential Financial. “That IPO really chastened investors.”

The backlog of companies planning IPOs fell to 39 in November, according to data from Ipreo, a market analysis company firm. That is the fewest since August 2009, just after the recession. The tally has been declining steadily since September 2011.

NYSE’s Cutler says that much of the decline is because of a law passed in April designed to make it easier for companies to attract funding. They can confidentially notify regulators of their intention to seek a listing.

Cutler says that if the business environment remains stable, the pace of IPO filling will be “slightly up” next year as companies become more familiar with the law.

The law allows companies to avoid disclosing competitively sensitive information and come to the market at much shorter notice. Ultimately, it will encourage more companies to seek listings, Cutler says.

Despite Facebook’s high-profile slump, most companies have left something on the table for investors.

The average return for IPOs this year has been 11 percent, according to Dealogic data. That’s less than the average 88 percent one-year return that investors garnered in 1999 but roughly in line with the broader market.

Among the best debuts: Guidewire Software, a provider of software for the insurance industry, and Nationstar Mortgage Holdings, a Texas mortgage provider and servicer, according to data from IPO investment advisory firm Renaissance Capital.

Investors that bought Guidewire’s stock at $13 at its market debut in January have seen it rise to almost $30, while Nationstar’s stock has almost doubled from $14 to $27.35.

There are some advantages to a slow IPO market, says Lutts of Cabot Money Management. When demand is low, only the best companies are able to attract enough demand to list on the exchanges, raising the quality of companies coming to the market. And it can be an indicator that the broader market is oversold and thus offers some bargains.

“When we’re frothy, everything is coming at a premium,” Lutts says. “I’m interested in equities today because of a weak IPO market.”


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