Facebook extended its post-IPO drop to as much as 53 percent last quarter after pricing its shares more expensively relative to earnings than 99 percent of companies in the S&P 500, data compiled by Bloomberg show.
As long as the global economic recovery remains uncertain, some investors will be reluctant to pay higher valuations for newly listed companies, according to Pete Sorrentino of Huntington Asset Advisors.
On Sept. 21, the World Trade Organization lowered its forecast for commerce growth, citing the extended European debt crisis, which has taken the region’s economy to the brink of recession. The day before, the International Monetary Fund said it would reduce its forecasts for economic growth on Oct. 9, when the organization is scheduled to release its next update.
“If the broader market finally wakes up and sees that valuations don’t make sense given where we are in the economic cycle, then the switch gets flipped again and everything goes dormant,” Cincinnati-based Sorrentino, who helps oversee $14.7 billion in assets, said in a telephone interview.
The risk of a further deterioration in the global economy, along with factors such as the U.S. presidential election in November, mean that opportunities to raise capital before year- end may be fleeting, according to Phil Drury, co-head of Americas equity capital markets at Citigroup Inc.
“There are a number of variables that could cause unforeseen shocks to the equity markets,” Drury said in a phone interview. “We’re advising our issuers that they need to be ready to go forward and they need to be nimble.”
In western Europe, companies raised a total of $385 million last quarter, the lowest amount since the first quarter of 2009, according to data compiled by Bloomberg. Talanx AG, Germany’s third-biggest insurer, canceled plans for a 700 million-euro ($905 million) IPO last month citing an “excessive discount” offered by potential investors. It revived the sale days later after slashing the size by 29 percent to 500 million euros.
Other companies in the region may also pursue sales this quarter after the Stoxx Europe 600 Index rebounded as much as 18 percent from a six-month low. Royal Bank of Scotland Group Plc, the U.K.’s largest state-owned lender, aims to complete an IPO of its insurance unit Direct Line this month, it said in a statement last week. The lender may raise as much as 975 million pounds ($1.6 billion), valuing it at 2.7 billion pounds, according to the statement.
“Europe’s equity capital markets have been quite dry so far this year. But from recent discussions with investors, they now appear to be willing to engage when it’s the right asset at the right price,” said Alasdair Warren, head of Europe equity capital markets at Goldman Sachs Group Inc.