March 29, 2024

Off the Charts: The Boom and Crash Cycle of I.P.O.’s

In just a few months, the market has gone from raising record amounts of money to reaching a 10-year high in the number of proposed offerings withdrawn because there was no market.

During this year’s second quarter, 98 offerings — which had been projected to raise $21 billion — were withdrawn, according to calculations by Dealogic. The number of canceled offerings was the highest since 129 proposed offerings were canceled in the fourth quarter of 2000, as it became clear that the technology bubble had burst.

The recent boom in initial public offerings was spread much wider than the one that ended in 2000. The earlier boom was concentrated in the United States, but the latest included many more companies from booming developing markets, particularly in China.

In the fourth quarter of 1999, the total amount raised by I.P.O.’s hit $66.1 billion, which was then the highest level ever. More than three-quarters of that was raised in the American market and most of it was for technology companies. In the final quarter of 2010, $127 billion was raised and less than one-quarter of that was raised by offerings in the United States.

In the latest quarter, the total raised was about half the level of the fourth quarter of 2010, although the decline in the number of completed offerings, to 406 from 516, was not as sharp.

As can be seen from the accompanying graphic, the market for initial public offerings virtually collapsed in 2002 and 2003, but then began to recover as stock markets rose and many countries reported strong growth. Thanks to strong volumes of foreign offerings, the I.P.O. market had become strong before the financial crisis killed the market in 2008 and 2009.

The volume of withdrawn offerings provides a clear indication of rapid changes in markets. Those are deals that underwriters thought they could sell. They went to the expense of preparing offering documents but then were unable to sell, at least at prices acceptable to the companies.

The failed offerings cover the spectrum, both geographically and in the nature of the business. In June, three proposed I.P.O.’s that had been expected to yield more than $1 billion each were withdrawn. One was a Hong Kong company that mines iron ore in Australia, another a French company that makes glass containers and the third an Indian company that builds and leases communications towers for cellular telephone service providers.

Unlike the collapse of the market in 2000, the latest decline does not follow a widespread collapse in the prices of previously hot new offerings. During the final three months of 2010, when the total amount raised by new offerings set a record, Dealogic counted nine offerings that doubled in price on the first day of trading. This week, all of those stocks were still trading above the offering price, although only two — Youku.com, a Chinese Internet television company, and TPK Holding, a Taiwanese maker of screens for smartphones and other devices — traded for more than they did on the first day.

Floyd Norris comments on finance and the economy on his blog at nytimes.com/norris.

Article source: http://www.nytimes.com/2011/07/09/business/the-boom-and-crash-cycle-of-ipos.html?partner=rss&emc=rss

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