A lot can happen in a month's time to boost or crush optimism about the pace of initial public offerings in the new year. In the last five months, the outlook for new issuance in the U.S. see-sawed between despair, from August through October, to renewed hope in November.
As the Thanksgiving holidays approached, many market participants were thinking that 15 to 20 IPOs could be cranked out in the final month of 2011. In the last two weeks, however, more deals have priced below their range than within or above, and a highly anticipated offering from Zynga Inc. belly-flopped on Friday. The stock fell 5% on its first day of trading, a debut that could be emblematic of a turn in the tech IPO environment.
"I have no doubt that if you were talking to me a few weeks ago, I would have said things were looking good for 2012. Now, following the volatility caused by the macro environment experienced last week, our approach to the first half of the year is wait and see," said Frank Maturo, head of Americas Cash equity capital markets at Bank of America Merrill Lynch.
The health of the IPO market is so tightly bound to the direction of broader stock indexes that it is easy to see why bankers are switching their views from week to week. Major U.S. indexes have seemingly been on a hot-air balloon ride from day to day and week to week, buffeted by swinging sentiment over economic indicators and the European debt crisis.
On Friday, the Dow Jones Industrial Average slipped 2.42 points to 11866.24 and finished the week down 2.6%. At one point the previous week, stocks were propelled to a six-week high on hopes for a decisive European Union summit, but those were dashed early last week after credit-ratings firms gave the thumbs down to efforts to resolve the debt crisis.
While some deals appear able to withstand any kind of weather—social-business software firm Jive Software Inc. and clothing designer Michael Kors Holdings Inc. turned in first-day pops of 25% and 21%, respectively, last week—the remaining six IPOs floundered or eked out only modest gains of less than 7%.
It's anyone's guess what kind of environment will appear in 2012, so investors may continue to be jittery around new stocks.
In turn, companies considering an initial public offering may decide that they don't want to grind through two weeks of marketing to investors in a road show only to be told that they need to discount their deals even further.
"Until markets settle down, the best thing is to plan and hope instead of setting a timetable," said Michael Zuppone, chair of the securities and capital markets practice at the law firm of Paul Hastings. For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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