NEW YORK (AP) — With new public stock offerings for guitar maker Fender and travel booking website Kayak on deck next week, there are signs demand is starting to grow for IPOs after a five-week freeze triggered by a steep decline in financial markets and exacerbated by Facebook's rocky May 18 debut.
Five companies are scheduled to go public next week alone, including Fender, Kayak and Palo Alto Networks,
a maker of computer network security products. After Facebook, just
four deals made it to market by the end of June, marking the longest
stretch without an initial public offering of stock since August-October
2011. Stocks sank then in the wake of the U.S. debt limit showdown and a
deepening European financial crisis.
The resurgence now is a welcome indication that dealmakers are regaining confidence about raising money through IPOs.
But the situation is far from rosy.
There
are 68 companies expected to raise $14.4 billion through IPOs later
this year, according to research firm Dealogic, Last year at this time
there were almost double that amount of companies — 135, looking to
raise $23.6 billion.
"If the
market stays healthy — the overall market — I think we will see a lot of
IPO activity in the second half," said Nick Einhorn, an analyst with
Renaissance Capital. But another plunge in stock markets could make it difficult for companies to raise money by selling shares.
The types of companies that try to raise money will also affect the IPO market.
Mutual funds and the other big investors who tend to buy IPO shares are
less likely now to be attracted to technology companies like social networks
and games maker Zynga Inc. They've shifted to business technology
companies such as Palo Alto Networks, which they consider more stable.
Stocks
of several of these kinds of companies have performed well since their
IPOs. ServiceNow Inc., a provider of so-called "cloud" technology
services to companies, went public in late June, pricing at $18, above
its expected range of $15 to $17. The stock has risen 34 percent from
its debut. Jive Software Inc., which makes internal social networks for
corporations, started trading in December and has climbed 56 percent
from its IPO price.
Well-known
consumer brands also help drum up excitement for IPOs among retail
investors, the "regular" people who buy and sell stocks. There are high
hopes for Fender Musical Instruments Corp., the company behind the
famous Fender Stratocaster electric guitars. It's looking to raise up to
$160.5 million in its IPO next week.
Several
other consumer-oriented deals could ignite excitement later this year,
said Morningstar analyst James Krapfel, citing Bloomin' Brands Inc., the
owner of Outback Steakhouse; English professional soccer club
Manchester United; and Coty Inc., maker of OPI nail polish and Jennifer
Lopez perfume. Krapfel doesn't expect much demand for deals in
industries sensitive to economic concerns and weak commodity prices such
as industrial and energy companies.
But
even companies in industries considered appealing will have a hard time
if the broader markets don't cooperate. Fears about the faltering
global economy stalled the IPO market in May, when economic worries
drove the Standard & Poor's 500 index down 6.3 percent. In June, the
index rallied 4 percent, but the IPO market tends to lag the broader
market and reacts to the prior month's decline.
That's
one reason experts like Einhorn remain wary. The S&P 500 is down 2
percent in July and a sluggish U.S. economy, signs of slowing growth in
China and financial crises in Europe may douse enthusiasm. Also, summer
is traditionally a slow time for making deals since many bank executives
take vacation in July and August.
And
then there's the memory of Facebook's disappointing debut. The stock
was expected to take off and ignite investor demand for other IPOs.
Instead, it closed up just 23 cents from its IPO price of $38 on its
first day of trading. The stock has fallen about 19 percent since then
and now trades around $31.
Facebook's
decline after its long-awaited, highly anticipated IPO of the social
network was "no question" a big negative for the IPO market, so the more
time passes, the better, said Sam Hamadeh, the CEO of PrivCo, a
research firm that follows privately held companies.
On
the plus side, investors may take heart from a spurt of IPO activity at
the end of last quarter. The stocks of all four companies that went
public in the last week of June are trading at or above their IPO price.
Next
week's scheduled IPOs include Fender, the travel website Kayak Software
Corp., which expects to raise as much as $87.5 million; network
security company Palo Alto Networks Inc., hoping to fetch as much as
$229.4 million; Five Below Inc., a discount teen retailer, seeking to
raise up to $134.4 million, and biotech company Durata Therapeutics
Inc., which could raise up to $81.9 million.