It will take more than Facebook to heat up the tepid market for initial public offerings. As conditions remain fragile, the backlog of public offerings has continued to grow. More than 200 US companies are now waiting to go public, the highest number in roughly a decade, according to Renaissance Capital, an advisory firm.
Demand is mixed. Investors are eagerly anticipating an offering from Facebook, which is expected to go public in the second quarter at a market value of $100 billion. But other companies - including Toys R Us, Yelp and the Carlyle Group - may not get such a warm reception.
Facebook “will bring a potentially unprecedented amount of attention to the IPO market,” said Peter Falvey, a managing director at Morgan Keegan, an investment bank. But, he said, “its IPO in all likelihood won’t have a tremendous impact on the ability of other companies to execute offerings.”
The problem is that investors are still recovering from 2011. About 70% of the companies that went public in 2011 are trading below their offering prices, according to Kathleen Smith, a principal at Renaissance Capital.
Wary of risk, investors have gravitated toward more established stocks in recent months. In 2011, theRenaissance Global IPO Index, which tracks recent public offerings, tumbled 20.6%. By comparison, the Standard & Poor’s 500-stock index, which tracks large-cap companies, was relatively flat for the year.
“Deals will come, but at least initially, investors are likely to look carefully at pricing,” said Brian Reilly, head of US equity capital markets for Barclays Capital.
Last year started with promise, with a rising tide of confidence in the equity markets and exuberance for the new generation of Internet companies. A string of technology offerings, like LinkedIn, the professional social network, and Yandex, the so-called Google of Russia, posted at least double-digit gains on their debuts.
In the first half of 2011, 78 companies went public in the US, raising $25.6 billion, more than double the amount raised in the period a year earlier, according to data from Renaissance Capital.
But the rally was short-lived. With trouble in Europe and growth in the US economy remaining sluggish, volatility ruled the markets in the late summer, effectively shuttering the market for public offerings.
In the second half of the year, a total of 448 companies went public worldwide, raising $55.6 billion, a 68% drop from the second half of 2010, according to data from Thomson Reuters. The markets in Asia were among the hardest hit, with IPO volume plunging nearly 73%, to $32.7 billion, during the period.
Several well-known brands managed to go public in November and December, including Groupon, Zynga and the fashion retailer Michael Kors. But many of the companies that went public in the second half of 2011 have struggled to hold on to early gains. Groupon, the daily deals site, has seesawed wildly.
Its stock now stands at roughly $19, just below its initial price. Zynga, which went public in mid-December, has never closed above its offering price of $10 a share.