IPO market costing PMs money

Applaud as I may the courage of those who attempt to complete an IPO at any time (see prior post “LuLu IPO took guts part 2” April 21-10), let alone in the wake of the mayhem in the capital markets and broader economy over the past few years, that courage comes at a price.

Although there was the appearance of an IPO window some months ago (see prior post “CDN tech IPO market stirring to life“), that window appears to now be closing. A 12% market drop (correction territory) in a 5 week window has that impact. The Canadian IPO market has seen several names pulled, such as Lulu, NetMotion and Porter, or downsized: think Tricon. Several of those that have gone out have fallen flat on their faces. Price-wise anyway. Three U.S. IPO deals were also pulled over the past week.

According to U.S. data, the stock market swoon has had a real impact on the performance of IPOs over the past six weeks. If we take April 21st as the day the worm started to turn, 10 have withdrawn and 22 different U.S. companies have priced their IPOs since that date. 14 of the deals that were priced are trading flat or down, with May’s results being 50/50. And there are still 152 deals in the U.S. “IPO pipeline”. Tough to buy new names right now.

Although two of Canada’s highest profile IPO candidates (Smart Technologies and Vixs) have yet to market their wares, I’d doubt we’ll see them before the Fall. Despite being on the launch pad for several weeks now, why charge off into these tortured waters? Their i-bankers know these recent stats all too well.

If you’re a portfolio manager, you definitely need the IPO to be priced to the point where you can’t but get a post-launch pop. Otherwise, you’d might as well play the Red/Black squares in Roulette.

For VC and PE-backed firms that were thinking about an IPO, why be impatient now and do a deal at any price? Almost US$5 billion of new VC capital went into U.S. innovation companies in Q1, and firms such as Porter have the good fortune of having investors such as the $50 billion OMERS pension fund to count on. There is money out there to be had, even if it doesn’t come from the public markets.

If that’s not going to put a damper on the IPO pipeline, I don’t know what will.

MRM