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The IPO Drought Is Over at Trader’s Narrative

The IPO Drought Is Over

At the beginning of the year we looked at the long term trend of IPOs and how they track the speculative impulses that run through the stock market. If you missed it, check out the historical chart of IPOs.

Last year’s bear market completely shut down the initial public offerings and took the number of companies going public to lows that we hadn’t seen since 1978. Depending on what criteria you use, we had about last year we had between 20 and 43 IPOs. Although the year isn’t over, it looks like we are set for a quiet recovery. So far, about 67 companies have amended their existing filings or registered to go public. More than half of them coming after the March low in the stock market.

Here is a chart of the IPO market for the past 20 years:
number of US IPOs 1991 to 2009
Source: Bloomberg

There is no sign that we are about to revisit the speculative frenzy that we saw accompany IPOs in the last bull market. That kind of speculative sentiment takes time to generate and the current IPO market is merely returning to ‘normal’ after the shock of the financial crisis. If anything, the IPO landscape going forward will be more selective and opportunistic.

Secondary Market
While the primary market is returning to normal, the secondary issues market has roared to life as companies rush to recapitalize and heal their damaged balance sheets. Just this week more than 15 US companies announced plans to issue more shares for a total of $7 billion. The largest chunk of that comes from Barrick (ABX) who is removing their infamous short position against gold. The same is true around the world. Lenovo and Alibaba both will place shares in Hong Kong. As well Cemex, the Mexican cement giant, will issue $1.8 billion worth of shares.

IPO Pipeline
Here is a chart of the quarterly IPO pipeline for issues filed, priced, and withdrawn:

IPO pipeline activity report Renaissance Capital Sept 2009

There is a limited history shown but you can see that the activity in the IPO market in the past few quarters has mirrored closely what we saw in the bear market that followed the tech bubble. Around the same time that the stock market stabilized in late 2002 and early 2003 and again in early 2009, the number of IPO withdrawals increased, filings and pricings dropped to a trickle.

Here you can read the recently released report on the third quarter IPO outlook from Renaissance Capital. If the link doesn’t work, you can also find it at the Free Trading Resource section of the blog (in the Reports folder).

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