Companies canceled or postponed $8.9 billion in initial public offerings in the third quarter as stocks plunged, putting the market on pace to set a record for pulled deals.
The value of withdrawn and delayed IPOs so far this year rose to $34 billion, approaching the $40 billion pulled in 2010, the most since Bloomberg began compiling data. Siemens AG suspended an IPO of its Osram lighting unit, while U.S. defense equipment maker ADS Tactical Inc. and Shanghai-based Xiao Nan Guo Restaurants Holdings Ltd. abandoned offerings.
The pace of IPOs slowed as equity markets fell to the lowest level in more than a year and stock volatility surged in August to the highest since 2009. In the U.S., delays helped create the biggest backlog of IPOs since at least 2006, with 154 deals as of Sept. 20, according to Ipreo Holdings LLC.
“Issuers have learned to be more patient while looking for the right windows,” said Tim Harvey-Samuel, Citigroup Inc.’s London-based head of equity capital markets for Europe, the Middle East and Africa. “A number of transactions may slip into 2012.”
Companies completed IPOs valued at $30 billion from the start of July through yesterday, less than half the amount in the previous quarter, according to Bloomberg data. That means funds generated from IPOs this quarter will be the least in more than two years.
While Dunkin’ Brands Group Inc. and Zillow Inc. completed IPOs during the quarter and have since climbed at least 40 percent, more than half of global IPOs this year are trading below their offer prices, Bloomberg data show.
“There’s no question that what has happened to the class of 2011 has impacted sentiment toward investing in IPOs,” said Mark Hantho, New York-based global co-head of equity capital markets at Deutsche Bank AG. “While there is some reluctance, I think it will recede fairly quickly, and with the right valuations on the table, people will start to play again.”
There were 366 companies planning IPOs around the world as of Sept. 20, almost double the number on file after the MSCI World Index reached a 13-year low in 2009, according to New York-based Ipreo, a capital markets data and analysis firm.
Groupon Inc., the biggest daily-deal website, delayed marketing its planned $750 million U.S. IPO to investors amid stock-market swings and may complete it by year-end, people familiar with the matter said this month. Zynga Inc., the online game developer, announced plans in July for a $1 billion IPO and has yet to set a date for completion.
The Chicago Board Options Exchange Volatility Index, known as the VIX, surged as high as 48 on Aug. 8, more than double its average level of 18 during the first two quarters of this year.
The intensifying European debt crisis and a U.S. credit downgrade from Standard & Poor’s pushed the MSCI World Index this month to the lowest since last August.
“Because stocks have been marked down by a fair number of selloffs lately, the valuations at which investors are willing to accept new issues have come down,” said Dan Cummings, head of global equity capital markets at Bank of America Corp. “Sellers who want to go ahead with their offerings will be faced with the potential trade-off of a more modest valuation or a smaller-sized deal.”
Offerings in Asia provided some relief, accounting for half of funds raised globally, Bloomberg data show. Sun Art Retail Group Ltd., China’s largest hypermarket operator, raised HK$9.5 billion ($1.2 billion) in its July IPO in Hong Kong, and the shares gained 17 percent through yesterday.
Hong Kong Leadership
Appetite for new shares in Asia got a boost from China’s economy, projected to grow twice as fast as the world as a whole in 2012, said Josef Schuster, founder of Chicago-based IPOX Schuster LLC, which oversees about $2.5 billion.
“There needs to be a market which takes leadership globally, and I think it’s going to be Hong Kong,” Schuster said. “If deals there go well, that will lend more confidence to the upcoming U.S. IPOs.”
As of yesterday, Goldman Sachs Group Inc. and Morgan Stanley led underwriting of global IPOs so far this year with 6.3 percent market share each, according to Bloomberg data. Deutsche Bank was third with 6.1 percent. Globally, the largest IPO this quarter was Bankia SA, which raised 3.1 billion euros ($4.2 billion) in a July offering in Madrid.
In western Europe, at least 24 new stock sales were postponed or canceled this year, almost twice as many as a year earlier, according to data compiled by Bloomberg. Yesterday, the Spanish government pulled the IPO for state-owned lottery operator Sociedad Estatal Loterias & Apuestas del Estado SA, citing market conditions.
While the volume of IPOs completed in Europe, the Middle East and Africa this year has risen to $37 billion from $25 billion a year ago, deals stalled in August as the global economic recovery deteriorated and concern grew that Europe’s banks may need more capital.
“IPO activities have fallen due to macro uncertainties in Europe and concerns over global economic growth,” said Maria Pinelli, London-based global vice chairman at Ernst & Young LLP who oversees the firm’s IPO advisory business. “We still see a record pipeline volume, but many companies have chosen to wait for a better environment.”
Still, a need for funds has pushed some to brave global uncertainty. Bankia and fellow Spanish lender Banca Civica fetched about $5 billion together through IPOs in July after their country’s government pushed them to shore up capital.
The rest are staying put. While the growing pipeline means plenty of companies are ready to move forward with their IPOs once investor demand recovers, global IPOs may raise $150 billion in 2011, 36 percent less than last year, said Renaissance Capital LLC. U.S. offerings may fail to exceed the $39 billion fetched last year, according to the Greenwich, Connecticut-based IPO research and investment firm.
“There’s a huge backlog of companies that want to go public,” said Timothy Cunningham, who helps oversee about $71 billion at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “The problem is that the companies want a different valuation than where the demand is. I don’t think anyone’s willing to bring it at these levels.”