CurrentOfferings.com Story:

Limping IPO market is 'walking with blisters'

By Elizabeth Wine, Financial Times, July 19, 2004

The market for initial public offerings in the US is limping through an uncertain period: deals are getting priced, but far less money is often being raised than intended. Observers and participants say it is definitely a buyers' market.

Of the 13 companies to go public so far this month, six have been priced below their original offering range, according to Thomson Financial.

So far this year, bankers have had to cut the price of 39 IPOs - roughly one-third of the deals done - to stimulate demand. Those deals have seen an average first-day gain of 5 per cent. But that advantage quickly fades, and the average performance of the reduced-range companies is a loss of 1.4 per cent.

David Menlow of IPO Financial Network, a research group specialising in young companies, said: "The market is doing a 10km walk with blisters. The market is trying to find some firm footing, and the casualties are really the issuers."

Ben Holmes, a money manager at Prot�g� Funds who specialises in IPOs and secondary offerings, said buyers were "more in control" than they had been in some time.

Investors have several reasons for reticence. The US equity markets have drifted lower in recent months to notch modest losses for the year. A stream of softer than expected economic data has raised fears that the economy is cooling, and investors have begun to fret that business spending might be slowing as well.

Technology and biotech companies account for more than one-half of the new issues this year, and those sectors have fallen the most from favour.

The Nasdaq has slipped more than 6 per cent since the start of the third quarter alone. It is not surprising that with the exception of the eagerly awaited Google IPO, investors' appetite for young companies has largely abated.

But that is not to say that investors are giving the cold shoulder to every tech offering. Greenfield Online, a market research firm using internet-only panels and surveys leapt 44 per cent on its debut on Friday. But like another recent success, Salesforce.com, a maker of customer-relations software, it was a small deal, raising just $65m.

These gems are increasingly rare.

Perhaps the biggest reason for investors' tepid response to most of the recent crop of deals is supply and demand: there are far more IPOs on the calendar than in recent memory.

Last year, as the stock market rallied and the IPO market emerged from its worst slump in a decade, there were 83 new issues. So far this year, there have been 114, according to Thomson Financial.

Tom Taulli, founder of the IPO website currentofferings.com, noted the market had been flooded with "billions in paper" in the last week alone, between the high-profile offerings of Domino's Pizza, Freescale Semiconductor and LG Philips LCD. "There's only so much a market can take," he said.

Freescale Semiconductor, a spin-off from Motorola, priced its nearly $1.6bn IPO on Friday at the low end of its estimated range. That range had already been reduced twice because of a harsh environment for semiconductor stocks, amid fears the industry may be heading for a cyclical downturn. Yet the stock climbed 8 per cent on its debut.

LG Philips LCD, the joint venture between South Korea's LG Electronics and Philips of the Netherlands, priced its IPO at the low end of its announced price range on Thursday, raising $1bn - half of what it originally intended. But the deal was priced only after the liquid crystal display company slashed the size of the deal by nearly one-third. The dual listing in New York and Seoul will begin to trade this week.

The lack of enthusiasm was not limited to technology.

Domino's Pizza failed to deliver, falling 3.6 per cent below its already-reduced offering price on its debut. Investors said the company, which has 7,400 stores in the US, had little growth potential. The stock is now 1 per cent below its offering price.