Companies struggle to start new stocks

IPOs find struggling market a tough go for new stocks

Top Stories   |  Updated 1h 34m ago
By Matt Krantz, USA TODAY

What looked like a promising start this year for IPOs is suddenly getting cloudier.

Three initial public offerings started trading Thursday, including a deal backed by former IPO star Frank Quattrone. The prices of all three deals were set below the expected range and even then closed mostly flat.

This is the latest sign that companies testing the IPO market are finding weak demand. Three other IPOs, including a Chinese solar-equipment maker and a company backed by Blackstone, postponed this week. Last week, three of the four IPOs expected to go public postponed, Renaissance Capital says. IPOs are running into resistance from:

•A choppy market. Despite a rally Thursday, stocks are off to a challenging start, with the Standard & Poor's 500 down 3.3% this year. Loss of faith in the market hurts IPOs even more as they tend to be riskier, says Tim Walker, IPO analyst at Hoover's.

•Price-sensitive buyers. Executives continue to think their companies are worth more than investors do, says Francis Gaskins of IPOdesktop.com. So companies must cut offer prices from levels their bankers initially suggested just to tempt investors. Generac Holdings, a maker of power generators, priced shares at $13 each, down from the range of $15 to $17 a share it initially expected. Thursday, the shares closed down at $12.84.

•Questions about growth in Asia. Investors are having doubts about the strength of the Chinese economy, dampening enthusiasm, says Josef Schuster of IPO tracker IPOX Schuster. JinkoSolar postponed its IPO this week, the third Chinese solar firm to do so in three months, Renaissance says.

•Lack of marquee deals. Investors like to see IPOs by promising companies with low debt and high growth prospects, but such firms are still scarce. Investors were interested in this week's QuinStreet deal, an online ad firm advised by former Credit Suisse First Boston banker Quattrone. But the deal priced and closed at $15 a share, well below its initial range of $17 to $19. Investors are especially tough on companies sold by private-equity firms if they're loaded with debt. Graham Packaging, a food-packaging maker sold by Blackstone, priced at $10, vs. its initial $14-to-$16 range.

All these factors combined are giving the IPO market pause, says Nick Einhorn of Renaissance. Price cuts, though, could be good news in disguise for investors if it means better performance going forward. "As long as investors get positive returns, they will be interested in them," he says.



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