Citing “poor market conditions”, three firms pulled their initial public offerings from the calendar this week, which was expected to be the busiest for pricing activity since November 2007.
Defense contractor ADS Tactical and Uruguayan Union Agriculture made the announcement Wednesday, following the postponement of Orchid Island Capital’s IPO on Monday.
Meanwhile, Dunkin Brands and software company Tangoe rallied on their first trading day Wednesday. Both offerings got strong pricing a day before, when Dunkin scored $19 a share, above its expected price range, and Tangoe priced at $10, the midpoint of the range.
“Market conditions are not “poor” when you have Dunkin IPO trading up 50 percent and Tangoe up 20 percent,” says Paul Bard, research director at Renaissance Capital.
Bard says the latest postponements are all function of the selective IPO market. “We have been in such an environment for the past 2.5 years, but it is probably more transparent at the moment given the cross-currents in the broader economy.”
“It just reinforces the fact that investors are discerning and unwilling to throw money at any IPO regardless of fundamentals,” says Bard.
All three companies had warnings signs for investors, according to analysts.
ADS Tactical, which hoped to raise $204 million, is too heavily dependent on government contracts at a time when defense and government spending are under scrutiny, says Francis Gaskins, president of research firm IPO Desktop.
And company insiders recently took a lot of money out of the company through past dividends and bonuses, according to Renaissance’s Bard. “Insiders were also selling on the IPO, which is always a difficult sell.”
Union Agriculture Group, which grows crops and cattle in Uruguay, looked like an interesting asset play, says Bard, but it was too young and small to spark investor interest. The company planed to raise $200 million by offering 14.3 million shares at a price range of $13 to $15.
“This one was really more about timing and speaks to the current risk appetite in the market,” says Bard. When it comes to young firms, “the only deals investors are willing to look at seem to be Internet companies experiencing rapid growth.” Gaskins believes the firm is better suited for a private placement than for an IPO.
Orchid’s IPO postponement did not come as a surprise to analysts. The company, which invests in residential mortgage-backed securities, cut its offering size last week to 5.2 million shares at a price of $8, from 7.5 million at a range of $10.00 to $12.00.
“It was a newly-formed entity that lacked a meaningful track record or unique investment case”, says Bard.
Six more deals are expected to price this week: Horizon Pharma (HZNP), Teavana (TEA), The Chefs Warehouse (CHEF), Wesco Aircraft (WAIR), WhiteGlove Health (WGH), and C&J Energy Services (CJES).