By Telis Demos And Maureen Farrell
Shares of Alibaba Group Holding Ltd. dropped below their sale
price from the biggest initial public offering ever last year, a
sign that market turmoil could cause an even sharper slowdown in an
already sluggish year for IPOs.
Alibaba shares dropped 3.5% Monday to $65.80, marking the first
time the Chinese e-commerce giant has closed below $68, its debut
price in September.
On Friday, shares of Twitter Inc., another erstwhile darling of
the IPO market, fell below their 2013 offering price, joining other
high-profile companies including Box Inc. and Etsy Inc. that
recently have fallen below that level.
That disappointing performance, coupled with the broader decline
in share prices triggered by fears of an economic slowdown in
China, could give pause to both companies and investors
contemplating IPOs. Companies are more likely to list their shares
in strong equity markets, to maximize proceeds. Sharp swings in
share prices also complicate IPO planning. Investors, meanwhile,
are more likely to invest in issuers that offer the potential for
long-term stock-price gains.
Returns investors get from buying into deals are falling more
broadly, too. Last year, IPOs delivered an average 20% price gain
through the end of the year, according to figures from Dealogic.
After Monday's session, the average gain for a 2015 IPO is just
2%.
In a sign of the impact the current environment is having on the
IPO market, genomics-research firm RainDance Technologies Inc. on
Monday pulled the plug on an offering that was scheduled for this
week, citing "market conditions." It didn't comment further.
Bankers and others involved in arranging IPOs said Monday that
it was too soon to tell if more offerings would be scrapped, in
part because late August is typically a slow period for share sales
and the markets could recover by the time many investors return to
their desks in September.
"We've gotten through turbulent times before and gotten right
back on track," said Jackie Kelley, a partner at Ernst & Young
LLP who leads the firm's IPO auditing, advising and consulting
effort in the Americas. "But now you're dealing with some big
macroeconomic issues."
She predicted that IPO activity in the remainder of the year
will involve companies that have already declared their intention
to go public, with those that are on the sidelines staying there
until into 2016 or beyond.
High-profile IPOs that were expected later this year include
those of financial-data processor First Data Corp. and retailer
Neiman Marcus Group Inc.
The IPO market was already in the doldrums after notching its
best year in more than a decade in 2014, in part because more tech
companies, with a wide array of fundraising options, have chosen to
stay private longer.
In the U.S., just 133 companies have gone public so far this
year, raising $25.8 billion, according to Dealogic. That is down
from 203 companies raising $46.7 billion through August last
year.
The pipeline of companies set to come to market has also shrunk
considerably versus where it was this time last year. Just 53
companies are currently lined up for U.S. listings, expecting to
raise at least $7 billion, according to Dealogic. This time last
year, 85 companies aimed to raise at least $10 billion.
To be sure, shares of some companies that have gone public in
recent years have performed strongly. Facebook Inc. stock has more
than doubled since its 2012 IPO. Shares of Fitbit Inc. and Shake
Shack Inc. also are up a lot since they were first sold to the
public this year.
The companies with arguably the most to lose from the IPO
slowdown are private tech startups that have raised money at big
valuations. The number of billion-dollar-plus private tech firms
has grown from 79 in January to 115 at present, according to Dow
Jones VentureSource.
Private-market valuations have been driven in part by the
windfalls reaped by early investors in Silicon Valley stalwarts
including Google Inc. and Facebook--and the strong initial
performance more recently of others including Twitter and Alibaba.
Within a month of its debut, Alibaba traded as high as $120 a
share; Twitter stock enjoyed an even better early rise.
"You could argue that the IPO prices have been too high and are
predicated on everything working right at a company," said David
Hornik, a general partner at the venture-capital firm August
Capital.
Private-equity firms also stand to lose from further weakness.
They were considering taking public some of their biggest holdings
later this year, including First Data, which has been aiming to
raise more than $1 billion in an IPO, and Neiman Marcus, which was
weighing one prior to the end-of-year holiday season.
Private equity-backed Univision Holdings Inc., the
Spanish-language media company, is also on file for a possible 2015
listing, as is Petco Holdings Inc., the pet-store chain. Other
high-profile companies that have been planning to go public this
year include Ferrari NV, mostly owned by Fiat Chrysler Automobiles
NV, and exercise chain SoulCycle Inc.
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(END) Dow Jones Newswires
August 24, 2015 19:36 ET (23:36 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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