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Here’s why the IPO market has not opened up

Trader on the floor of the New York Stock Exchange.
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Trader on the floor of the New York Stock Exchange.

Three weeks ago, I noted that the IPO window would likely open up shortly because the biggest single factor for IPOs — the state of the overall stock market — had rallied 9 percent from its Feb. 11 low, a dramatic improvement in less than a month. I even listed likely candidates who would be first out of the gate!

Three weeks later, I'm still waiting. Three weeks later, not only has the market not rolled over, the S&P is up another roughly 3 percent.

So, market conditions continued to improve, but we don't see any IPOs. We will end the quarter with nine IPOs: seven biotech firms and two medical device companies (this includes one company this week), the lowest number since the first quarter of 2009, according to Renaissance Capital, the IPO authority that runs the Renaissance Capital IPO ETF (IPO).

And still we get excuses. This time, it's the Easter holiday: Slow last week and this week, people are still off. Now we're going into spring break. More people off.

What happened?

A call to seven or eight prominent IPO watchers produced essentially the same results: "Be patient, Bob. It's coming. When you have a disaster like January and February, it's going to take time to heal."

This "calm the hell down, Bob" attitude would be understandable, except that:

1) we are in the sixth week of the market coming off the bottom, long enough for SOMEBODY important to do SOMETHING, and

2) there are more than 100 companies waiting for a chance to go public, who understand that there may be a very small window for many companies to IPO because we are about to go into a potentially volatile election that could make markets volatile again.

Now, come on. Something else is going on besides the "It takes time, Bob" story.

Here are my thoughts:

1) Investor sentiment is still very uncertain. I think this is the primary problem. We may have had a notable bounce off the lows, but the overall market is still flat for the year. If you can't make money in a regular market, it's hard to justify rolling the dice in an IPO market.

2) Most IPOs are small-cap growth names, and small-cap growth names have notably underperformed the market this year. When tracking the performance of IPOs, it's better to compare it to a small-cap index than a big-cap index. The iShares Russell 2000 Growth ETF (IWO) is down almost 8 percent this year, much worse than the 4 percent decline in the overall small-cap Russelll 2000 and the flat performance of the S&P 500.

Not surprisingly, the Renaissance Capital IPO ETF (IPO), a basket of the most 60 recent IPOs, is down 10 percent for the year, despite a nice rally since the Feb. 11 low.

3) Many tech IPOs have successfully secured private funding, which is providing some insulation from the pressure to go public. Just yesterday, Uber's CEO implied they are in no hurry to go public.

With that said, SOMEBODY of importance will definitely go public soon, unless the market collapses again. In my last story, I mentioned SoulCycle and BATS Global Markets.

Last week, MGM Growth Properties (MGP), the REIT that operates a portfolio of 10 gaming properties including Mandalay Bay, Mirage, and others, filed confidentially, which means it could go public on very short notice.

More importantly, several IPO candidates have update their financials. That is a sign they are still actively pursuing an IPO. They include Dell-spinoff SecureWorks (SCWX), PSAV (PSAV), which provides audiovisual and technology services for large conferences, and Red Rock Resorts (RRR), a Las Vegas-based casino operator (the old Station Casinos).

All good news. We're waiting. And waiting.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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