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There’s a Long, Dry Summer Ahead for the IPO Market

Despite a near record number of companies in the pipeline, the post-Facebook drought in initial public offerings may last all through the summer, say analysts.

Steven Puetzer | Getty Images

“There has been a near perfect storm hovering over the IPO market driven by regulatory uncertainty following the Facebook debacle, investors that on average have lost money on recent deals, and ongoing global market uncertainty,” said Paul Bard, research director at Renaissance Capital. “This has put a significant damper on investors’ appetite for risk and will likely result in a very slow period for IPO issuance in the near term.”

Not a single offering has been priced in the last four weeks, and the IPO calendar is currently empty. Loyalty Alliance Enterprise, a Chinese mobile marketing provider, was the latest company to postpone its IPO Thursday.

If no deal prices in June, it will be just the second month without an IPO in more than three years — behind September 2011, according to Renaissance Capital.

“The key in the next few weeks will be to see how many, if any, companies set price ranges, meaning they are probably preparing to try to go public before the usual August slowdown,” said president of IPO Desktop Francis Gaskins.

Renaissance Capital’s Bard said many companies may simply have written off the summer and will opt to wait until after Labor Day to launch.

Right now, all market’s attention is on the escalating crisis in Europe, said Lee Graul, partner in the Capital Markets Practice of BDO USA.

“No one wants to conduct an IPO during a volatile stock market, and until Europe gets its debt crisis in order, volatility will be the order of the day,” Graul told CNBC. “Once there are signs that Europe has taken decisive action to address the crisis, markets should begin to steady and then it will take a few brave souls to test the waters.”

According to Bard, there is still a sizeable IPO backlog, with more than 300 companies globally looking to raise over $200 billion.

One of the biggest deals in the pipeline is the world's largest satellite services provider Intelsat, which hopes to raise up to $1.8 billion. The Luxembourg-based company operated as an intergovernmental organization for more than 30 years and became a private company in 2001. Intelsat booked $2.6 billion in sales for the 12 months ended March 31.

Among other large deals waiting in the wings are FTS International, Avaya Holdings, and Empire State Realty Trust, according to IPO Desktop.

Michaels Stores, the largest arts and crafts retailer in North America, is also eyeing an IPO and hopes to raise up to $500 million. The company has 1,196 stores and booked $4.2 billion in sales in fiscal 2011, according to the SEC filings.

If there’s any activity in the IPO market this summer, said Bard of Renaissance Capital, it will likely be limited to high-quality very mature, defensive names.

“Speculative or undifferentiated IPOs will have a very tough time getting priced given the current backdrop,” he said. “And backlash from the Facebook IPO and declining equity prices overall would require any company seeking to go public in the near future to provide heavy price concessions to investors.”

So far this year, 69 deals priced in the U.S., down 5.5 percent from a year ago. In addition, 29 deals have been withdrawn year-to-date — the same number as this time last year.

The global IPO market has also slowed to a crawl. Only 98 IPOs priced globally, down 50 percent from a year ago, and proceeds raised are down 42.7 percent for the same period.

But analysts are not ready to call it a year for the IPO activity.

“As history has taught us, the IPO market can turn on a dime so companies need to be ready to jump the moment a window opens,” said Bard.

Questions? Comments? Email us at marketinsider@cnbc.com and follow me on twitter @kfrayter

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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