GO
Loading...

Sizzling market for US IPOs cooling down

Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

The once white-hot market for initial public offerings in the US has cooled in recent months amid a broader rotation by investors away from high-octane growth stocks.

As shares in sectors including biotechnology and social media sold off, listing companies have found a less receptive and more discriminating investor.

"While growth stocks prices were expanding, investors were willing to aggressively value companies making it a constructive environment for technology IPOs," said David Ludwig, a partner in the equities capital markets group at Goldman Sachs who focuses on technology companies. "Now that valuations have contracted and investors endured significant losses, it is harder to convince them to participate but the market is not closed."

As investors become more selective, companies that want to proceed with listings need to be tactical in how they approach the market. Sizing, structuring and pricing deals is critical to garnering investor demand.

More from Financial Times:
'Visionary' leader sets JD.com apart from other ecommerce groups
The power of start-ups
Investors strain under weight of UK listings

Zendesk, a cloud-based customer service company that listed this month, said in regulatory filings that some existing stockholders had expressed interest in participating in the IPO, providing a vote of confidence. Shares have rallied since they listed.

Still, seven IPOs have been withdrawn this month, the most for a month this year and most since 14 were withdrawn in November 2012, according to Dealogic.

Moreover, nearly half of companies that listed in April and month to date in May have priced below their range. And the average "pop" in first-day trading was just 8 per cent for the last two months versus 18 per cent in January through March.

Some companies are still meeting strong demand. Chinese ecommerce company JD.com priced its US offering above the anticipated range and shares rallied on their debut on Thursday. In spite of caution elsewhere, investors remain enthusiastic about the big players in Chinese online retail. This year may yet include the largest ever listing depending on how much JD.com rival, Alibaba, raises with its widely awaited IPO. It would have to beat Agricultural Bank of China's $22.1bn deal from July 2010.

Read MoreWhy Alibaba's IPO is the end, and beginning, of an era

Jeff Immelt, chief executive of General Electric, said on Wednesday the company was still on course for the planned IPO of Synchrony Financial, its North American store credit business.

Speaking at the Electrical Products Group conference in Florida, Mr Immelt confirmed the plan to sell up to 20 per cent of the company in the third quarter of this year, to be followed by a full spin-off next year.

The forward slate also includes a listing from Citizens Financial, the US retail bank owned by RBS.

Hess, the US oil group, on Thursday announced the sale of its network of fuel stations to Marathon Petroleum at what was seen as an attractive price of $2.6bn.

Read MoreGoPro going public, but is it a good investment?

Hess said in January it was considering spinning-off the business through a tax-free distribution of equity to shareholders, as it focuses on oil and gas production.

Paul Sankey of Wolfe Research said the price was about $900m higher than he had expected, and the deal was "clearly a positive for Hess".