Initial public offerings dropped last quarter to the second-lowest level since the financial crisis, as signs of a global economic slowdown threaten to extend the IPO market’s slump into 2013.
Initial share sales raised about $21.3 billion worldwide in the three months through September, 48 percent less than the previous quarter, according to data compiled by Bloomberg. While Japan Airlines Co. completed 2012’s biggest IPO since Facebook Inc., companies from guitar maker Fender Musical Instruments Corp. to Hardee’s owner CKE Inc. shelved their offerings after failing to procure the price they wanted from investors.
The U.S. stock market’s rally to a more than four-year high has provided only limited momentum for share sales as slowing growth in China and the European debt crisis help spur the International Monetary Fund to lower its forecasts for the global economy. With Facebook having lost about half its value since pricing its initial offering at 107 times earnings, potential IPO investors are now demanding cheaper valuations in the face of economic uncertainty, according to Bank of America Corp.’s Frank Maturo, vice chairman of equity capital markets.
“One of the biggest reasons companies aren’t moving forward is that the discounts buyers are demanding are high,” Maturo said in a briefing last week in New York. “Otherwise, if discounts were at traditional levels, it would be wide open.”
Maturo said that while investors in the past typically expected IPOs to be priced 10 percent to 15 percent more cheaply than comparable publicly traded stocks, they’re now demanding discounts that sometimes exceed 20 percent.
The $21.3 billion raised through IPOs globally in the July-to-September period was the second-lowest quarterly amount since the American economy ended its longest recession since the Great Depression in June 2009. Only the $16.4 billion raised in the first quarter of this year was lower. Initial share sales in the U.S. last quarter plunged 84 percent to $3.5 billion from $22.7 billion in the previous three months, data compiled by Bloomberg show.
While some companies such as teen retailer Five Below Inc. and real-estate website operator Trulia Inc. completed sales last quarter as the Standard & Poor’s 500 Index climbed to its highest level since December 2007 and stock market volatility reached a 5-year low, Fender, CKE, LegalZoom.com Inc. and Momentive Performance Materials Holdings LLC all pulled their IPOs.
Fender announced on July 19 it wouldn’t go ahead with its IPO, saying it couldn’t achieve an “appropriate valuation” because of market conditions. CKE postponed its IPO in August, and Chief Executive Officer Andrew Puzder said in a Sept. 21 interview that investors were deterred by the company’s rising costs and inability to charge higher prices for its food.