Two companies postponed their IPOs on Tuesday in light of poor market conditions. Pioneer Power Solutions (PPSI), which sells electrical transformers to niche markets in North America, and Stewart & Stevenson LLC (SNS), which offers custom equipment for unconventional drilling to the oil & gas industries, have decided to delay their offering in the hope that the prevailing market environment will improve.
Pioneer Power Solutions had planned to sell 2.3 million shares at a price range of $8 to $10. At the mid point the company would have raised $21 million and commanded a market value of $68 million. The Fort Lee, NJ-based company was founded in 1995 and booked $54.7 million in sales for the 12 months ended 3/31/11. Oppenheimer & Co. was set to be the lead underwriter on the deal.
Stewart & Stevenson LLC had originally planned to offer 16 million shares at a price range of $14 to $16. At the mid point the company would have raised $240 million and commanded a market value of $1 billion. The Houston, TX-based company was founded in 1902 and booked $970.7 million in sales for the 12 months ended 4/30/11. J.P. Morgan, Goldman, Sachs & Co., and Citi were set to be the lead underwriters on the deal.
The U.S. IPO market has shown considerable strength year to date, with a 27% increase in issuance activity (75 IPOs priced YTD) and a 195% increase in proceeds raised ($25.2 billion) from the prior year period. Despite the uptick in activity, there has also been an increase in the number of deals that have been withdrawn or postponed. This year, there have been 32 postponements or withdrawals of IPOs (excluding withdrawals due to acquisitions), up from 21 in the previous year. It is worth noting that that of the 32 deals to be postponed this year, 14 have filed for withdrawal since the beginning of May.
The S&P 500 index has dropped 70 points (5%) since May 1st and the increase in postponements may serve as an indication that the broader market decreases have started to take their toll on IPO activity. This story is further corroborated by recent pricing activity. Of the 26 deals which have priced since May 1, 11 have priced below their given range (average price vs. midpoint of -18%), most recently Vanguard Health Systems (VHS), which priced at $18, 18% below the midpoint of its $21 to $23 range.
The good news is that we have seen this dynamic time and time again in the past; most recently in March (Japan tsunami/earthquake) and May of 2010 (euro debt crisis). Assuming the broader markets can stabilize, and given the elevated backlog of IPOs (167 deals, near a 10 year high), we view the current environment as a short term lull in a favorable IPO cycle as opposed to the start of a prolonged contraction in IPOs.