The current boom in U.S. initial public offerings does not signal a free-for-all for prospective companies, which are closely watching the mixed performance of IPOs this week and last, the head of listings at the New York Stock Exchange parent company said on Tuesday.
My advice to the companies going out is that it is still a very discerning capital market, Scott Cutler, NYSE Euronext executive vice president, told reporters. It is not a free-for-all. It is not open to any company that desires to go out.
Seven U.S. IPOs were launched last week on the NYSE and the Nasdaq Stock Market. But a sharp first-day drop on the Nasdaq of China-based video game company Shanda Games Ltd and poor performances by two NYSE-listed REITs, cast a shadow over the busiest week in nearly two years.
Everybody is watching every transaction to see how well it's received, how well it's oversubscribed and how well it performs, Cutler said.
Despite the fact that you had a few missteps last week, the pipeline is still very healthy and the healthiest that we've seen in at least two years, and the backlog continues to grow very aggressively. The market is much safer than it was six months ago.
The two mortgage real estate investment trust (REITs), Colony Financial Inc and Commercial Real Estate Finance Inc, completed their IPOs a day late and at half the size originally targeted due to limited demand.
Shanda's 14 percent drop on its debut was blamed on a late decision to boost the size of the IPO, leading to an oversupply.
That contrasted with Nasdaq-listed A123 Systems Inc, a maker of lithium-ion car batteries, which soared more than 50 percent last week. It was the only strong first- day performance.
It's more a function of the fundamentals of the particular transactions rather than a reflection of the overall tenor of the market, Cutler said of some of the poor performances. You still have to price well, perform well, to be a long-term positive investment thesis.
Companies looking to go public have scrambled since February to take advantage of this year's stock market rebound, marking an end to what had been a near six-month drought. Most are trading above their IPO prices.
The NYSE-listed IPO next week of Banco Santander SA's Brazilian unit will likely be the world's biggest this year, highlighting the renewed demand for capital.
Cutler said it was reasonable to expect that the pace of transactions in 2010 would reach the robust levels seen in 2007, helped in part by IPOs backed by private equity firms -- which took many companies private in 2006, 2007 and early 2008, and may be looking to return them to public markets.
Private equity firm Kohlberg Kravis & Roberts & Co's [KKR.UL] Dollar General Corp could come to the Big Board by the year end, according to regulatory filings.
You'll see a few of these (PE-sponsored IPOs) come out at the end of this year ... and to the extent that the IPO calendar stays open, I think 2010 will be a healthy pipeline in these transactions, Cutler added.
(Reporting by Jonathan Spicer; additional reporting by Phil Wahba)