IPO Market Challenged But Forging Ahead

by: Renaissance Capital IPO Research

Despite the tough market newly-public companies have faced in recent months, IPO activity is forging ahead with six new companies filing to go public on Tuesday, the highest same-day number since July of 2007.

The IPO market has faced challenges since the beginning of 2010. Of the eleven companies that were scheduled to go public earlier this month, five postponed their offerings, while the remaining six all cut their deal sizes by an average of over 30%. Further, only three of these six witnessed positive first day returns. Even as investors hold the cards in the current environment and pressure financial sponsors to make valuations more attractive, only companies with strong fundamentals and promising growth prospects are finding success.

Given this backdrop, there are no companies scheduled to go public this week and only two small deals on the IPO calendar for the rest of the month: Anthera Pharmaceuticals (NASDAQ:ANTH) and The Film Department Holdings (NASDAQ:TFDI). Monday's holiday and Tuesday's accounting deadline (by which all companies planning to go public must disclose financial data for the full year 2009), as well as volatility in the broader markets are also factors likely contributing to the current pause in IPO activity.

However, the continued strong levels of IPO filings demonstrate that companies have not been deterred from approaching the market. In addition to the six filings that were turned in on Tuesday, twenty-two others have been submitted since the beginning of this year, as compared with the four companies that filed during the entirety of the first quarter of 2009. Tuesday's diverse group spans a wide range of sectors, from retail (Express (NYSE:EXPR)) and financial (Hudson Pacific Properties (NYSE:HPP)) to technology ((Fallbrook Technologies (FBRK) and China Intelligent Lighting (NASDAQ:CIL)) and energy-related (Chesapeake Midstream Partners (CHM) and Scorpio Tankers (NYSE:STNG)). The last day to match Tuesday's number of filings was over two and a half years ago, on July 2, 2007, when seven companies filed to go public.

The growing number of deals in the pipeline hints toward a muted yet healthy optimism in the IPO market. Although we have seen uninspiring performances in recent months, the sharp increase in filing activity and the high quality of the backlog are leading indicators of a recovery in the IPO market to surface later on in the year.

*Data excludes SPACs.