One of the victims of Japan’s tsunami was somewhat unexpected: The Global IPO market.
This week alone a slew of companies including Denmark’s ISS, a cleaning, security and catering business, and French conglomerate Lagardere, which was spinning off its ownership in Canal Plus France, all decided to postpone their offerings. And a host of others that were close to pricing their offerings have pulled back.
Ironically, both ISS and Lagardere are mature companies. Lagardere in 2010 had revenues of more than $11.2 billion; ISS, which is privately owned, reported revenues in excess of $12 billion. And neither is likely to be affected by the tsunami fallout. But investors worldwide are jittery and even if the companies had successfully completed their offerings they feared a sharp post-offering slide. “It was more favorable for issuers not to go public now,” says one institutional investor. “Most are big enough that they can afford to ride out the market’s problems.”
“The pullback is a short-term reaction,”says Trent Tillman, co-founder of SyndicateTrader.com, which specializes in research for IPOs and secondary offerings. This year’s IPO market – driven by private equity backed offerings – is much healthier than in the past few years. “You are getting deals done that you couldn’t have gotten done last year.”
The decision to postpone the offerings is about the volatility in the market. It’s not about its quality,” says Leah Fuhlbrugge, IPO analyst with Renaissance Capital in Greenwich Ct., IPO research firm. IPOs have raised more than $23 billion globally this year, 65 percent ahead of last year’s pace, notes Fuhlbrugge.
In the U.S. alone, companies such as HCA, Nielsen Media, Kinder Morgan and American Asset Trust , have raised in excess of $10 billion this year. “There is a huge backlog of similar companies out there,’ says Tillman. And, although the troubles In Japan and Libya may slow the offerings somewhat, the overall investor climate is extremely receptive.
Still, the market for smaller company IPOs remains difficult. The offerings are too small, there are only a limited number of buyers, “little is going to happen unless there are some regulatory changes,” says New York venture capitalist Alan Patricof. Patricof, who as the founder of Alan Patricof Associates and Apax Partners, is familiar with both the venture capital and private equity universe believes that the economics are just not there for small companies to go public. Investors, especially now, continue to be risk averse, says Tillman. And they have limited interest in small companies, especially those that have no products or a small market.
Indeed, for the moment the global IPO market remains a market for big company issuers, either spinning off units or enabling their private equity backers to cash out. Renaissance Capital estimates that there another 212 IPOs waiting in the wings, expecting to raise $90 billion.
