The initial public offering market is fizzling as 2015 comes to a close. LoanDepot became the latest company to pull its IPO, citing the dreaded "market conditions."
There is nothing wrong with the consumer loan business LoanDepot represents, but there was some debate about its valuation. The company is essentially a mortgage lender, but it trades at multiples closer to peer-to-peer lending platforms. Why was LoanDepot?
But don't kid yourself. LoanDepot was a victim of the fragile market and an IPO after-market that has lost investors money for most of this year.
And now those IPO investors are demanding lower prices to buy. LoanDepot was hoping to float 30 million shares at $16 to $18, but talk on desks yesterday was it could price at $12 and lower.
Rather than take the price, management walked.
And others have, too. Albertsons dropped its IPO, and it's unlikely Nieman Marcus or Univision — two high-profile names that have filed but not announced terms — will debut now.
IPO candidates have responded to investor demands by cutting prices. Since Sept. 1, 32 IPOs have priced. On average, they have priced 18 percent below the midpoint of the price talk, according to Renaissance Capital, which runs the Renaissance Capital IPO ETF, a basket of roughly 60 recent IPOs.
The average return of those 32 IPOs has been 8.7 percent from the IPO price. That's good for buyers.
For the year up to Aug. 31, when most IPOs priced at or above the midpoint of the price talk, the average return for was down 8 percent from the IPO price.
That is bad for investors, and it's also why after Labor Day companies have said, "Enough!" and demanded lower prices.
The lesson: Cut the price, and the IPOs perform better.
The Renaissance Capital IPO ETF is up 6 percent this quarter.
Those that have cut their price to get their deal done have done better. Look at FirstData, which priced a few weeks ago at $16, below the price talk of $18 to $20. Despite a rocky start, shares are now above $17.
And look at the deal that priced just last night. Instructure, a cloud-based software company priced 4.4 million shares at $16, the bottom end of the price talk of $16 to $18. But the deal got done.
It's not all bad news. The IPO traders have high hopes next week for online dating service Match Group, which has one overriding virtue: it is profitable.
There's also big hopes for payment provider Square, which has had standing-room only crowds at its roadshow. The concern is over valuation. The price has been discounted roughly 35 percent below the last round of private funding. That's what investors want to hear. The question is, was it enough?
There's also Mimecast, a smaller deal, that is pricing next week but is in the right space, cyber security.