IPO Fizzling?

IPOs hit the wall—did the Blackstone announcement put them over the edge? Another day, another indifferent reception to an IPO.

Today it was RailAmerica, which operates short-haul rail lines—priced 22 million shares at $15, below the talk of $16 to $18, but it never once traded at $15. At one point this morning it was trading below $14. They were taken private nearly 3 years ago by Fortress Investment.

Why the poor reception? Two issues:

1) the deal structure. Half the money will go to Fortress, the other half will go to pay down debt (which Fortress put on) and possible acquisitions for RailAmerica. Not attractive for investors.

2) the Blackstone announcement. Blackstone announced last night that they would be seeking to float a large number of companies in the coming months, including United Biscuits, Merlin Entertainments, and up to 8 other companies.

This is a large overhang of new companies, and investors may be a little overwhelmed by the choices at this point.

Speaking of overwhelmed, billionaire investor David Murdock chose this morning to announce that he would seek to bring Dole Food public (once again), perhaps as early as next week. This is a big one: he'll be seeking to raise nearly a half-billion dollars (35.7 m shares at $13-$15). More choices.

This on the heels of the total indifference of the market to five real estate investment trust (REIT) IPOs that tried to price in the past few weeks.

Two of them were pulled before they even priced for lack of interest.

Apollo Commercial Real Estate Finance, which went public a couple weeks ago, was able to raise only half the money it anticipated. It priced at $20, but is trading below $19 today.

And the biggest IPO of the year—Banco Santander Brazil, priced last week at $13.50 and is still trading down, most recently at $13.08.

Does this mean the anticipated flood of IPOs will turn into a trickle? Not necessarily, but the Street is sending a very clear message: we are price sensitive, and unwilling to pay big premiums.



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