Facebook Inc. is leading U.S. initial public offerings to their worst monthly performance since Lehman Brothers Holdings Inc. collapsed, as Europe’s debt crisis scuttles IPO plans from New York to Hong Kong.
The Bloomberg IPO Index, which tracks U.S. equities in the first year after their IPOs, has sunk 15 percent this month, with Facebook posting the worst one-week performance among the 30 largest U.S. IPOs since 2011. The IPO index’s decline compares with a 19 percent drop in September 2008, when Lehman’s bankruptcy triggered the worst financial crisis since the Great Depression.
Kayak Software Corp. and Russian social-networking company VKontakte shelved New York listings this week, while Graff Diamonds Corp. delayed a Hong Kong sale and the Formula One auto-racing series said its Singapore IPO may not occur until later this year. Facebook’s 25 percent slump since going public this month has shaken investors already reeling from tumbling equity markets and the slumping European economy, said Jeffrey Sica of Sica Wealth Management LLC.
“We’ve reached a breaking point where sentiment is so negative and scrutiny is so high that companies don’t want to go public and investors aren’t prepared to look at them,” said Sica, who oversees more than $1 billion as chief investment officer of the Morristown, New Jersey-based firm. “You’re talking about long-standing damage to the psyche of companies wanting to go public and investors.”
At least 13 IPOs have been withdrawn or postponed globally since Facebook’s May 17 offering, slowing a market for deals that’s struggled to keep momentum as U.S. stock values have failed to recover to levels before the financial crisis. There have been 192 IPOs globally since the beginning of April, putting this quarter on pace to be the slowest since 177 initial offers were completed in the three months through September 2009, Bloomberg data show.
Facebook completed the biggest technology IPO on record just as offerings were drying up, and has since lost about $23 billion in market value. No other companies have completed or set pricing terms for U.S. IPOs since the Menlo Park, California-based social-networking company raised $16 billion.
Laser hair-removal company Tria Beauty Inc., computer- memory component maker Corsair Components Inc. and CyOptics Inc., a network technology provider, have all postponed or withdrawn U.S. IPOs in the wake of Facebook. Kayak, the Norwalk, Connecticut-based online travel service, was scheduled to begin its IPO roadshow last week and postponed following Facebook’s drop, according to a person close to the situation.
The measure of U.S. stocks volatility known as the VIX rose to 25.1 on May 18, the highest level this year. Investors won’t warm to IPOs until the market steadies, said Silvercrest Asset Management Group’s Stanley Nabi.
“It’s going to be very difficult until this market has a track record of rising on a consistent basis for several months,” said Nabi, who helps oversee more than $10 billion as vice chairman at the New York-based firm. “When psychology improves, that’s when you’ll see new issues coming into the market. The door is essentially shut in the short and intermediate term.”
Concerns that global economic growth is slowing and Greece may leave the euro area have sent the Standard & Poor’s 500 Index down 6.1 percent this month through yesterday, on pace for the biggest monthly drop since September. The sagging confidence is also plaguing offerings in other markets.
Formula One Chief Executive Officer Bernie Ecclestone said recently that Formula One could complete its initial share sale in Singapore by the end of the second quarter. Thursday, he said the offering may have to wait, partly because of volatile equity markets. The Chicago Board Options Exchange Volatility Index has risen almost 40 percent this month and is set for the largest monthly gain since July.
London-based jeweler Graff Diamonds also suspended its $1 billion IPO in Hong Kong Thursday, citing “consistently declining stock markets.”
VKontakte founder Pavel Durov said May 29 that Russia’s largest social-networking website would postpone its IPO indefinitely. The company had revisited plans for a sale initially following Facebook’s IPO, people with knowledge of the discussions said earlier this month.
Facebook’s IPO price indicated a market value of 107 times trailing 12-month earnings, more than all but two companies in the S&P 500 at the time of the offering, according to data compiled by Bloomberg. Technology companies seeking high valuations in initial sales will need to “come down to earth” to attract investors after Facebook’s post-IPO decline, said Nabi, who says he didn’t advise clients to subscribe to the IPO.
“Offerings coming out at insane valuations, in the hope that fast growth will bail them out, are irrational,” Nabi said. “People are realizing it.”
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