Stomach-churning market volatility and lack of investor confidence are taking a toll on the initial public offering (IPO) market, with nine deals already withdrawn or postponed this week and more expected to follow.
WageWorks, an online employee benefits provider, Loyalty Alliance Enterprise, and WhiteGlove Health were the latest companies to announce delays of their IPOs Wednesday. Six other firms pulled their offerings earlier in the week, citing poor market conditions: Seattle-based lender HomeStreet, Portugal's TIM w.e., InvenSense, AgFeed Animal Nutrition, Cathay Industrial Biotech, and Enduro Royalty.
“When equity markets tumble and volatility spikes, investors focus on their existing portfolios and shy away from putting money to work in new issues,” says Paul Bard, research director at Renaissance Capital. “No investor wants to participate in an IPO when there is a strong possibility that it could drop five to 10 percent right out of the box.”
There were four deals remaining on this week’s calendar as of midday Wednesday.
Issuers that are brave enough to come out in this turbulent market should expect significant valuation haircuts, according to Bard. “If the average IPO discount is 10 to 15 percent, then in an environment like this, investors will demand concessions of 25 to 30 percent or higher,” Bard told CNBC.
Online backup solutions provider Carbonite made the move Wednesday, slashing its deal size to $66 million from $100 million. The company, which is still scheduled to price this week, now plans to offer 6.3 million shares at a reduced price range of $10 to $11 per share, versus the original range of $15 to $17 a share.
In total, 65 IPO listings worth an expected $11.6 billion have been withdrawn so far this year, according to data from Dealogic. This is the most since the same period in 2001, when 128 deals worth an expected $12.1 billion were pulled.
The oil and gas sector has seen the highest volume of deals withdrawn this year, with seven deals worth an expected $2.4 billion pulled. The technology sector has seen the largest number of IPOs pulled, with 12 deals worth $1.2 billion.
Analysts say it’s too early to tell if current market turmoil will kill IPO activity for the remainder of the year.
“Hopefully, the current situation in the markets is only transient and the markets can regain some sense of stability, in which case we do expect activity to pick up post Labor Day given the size and quality of the IPO backlog,” says Bard. “If the markets are signaling a beginning of meaningfully negative and lasting structural changes in the overall economic environment, then the impact on the IPO market could be more significant.”