The recent sell off in the stock market has also put a damper on the market for initial public offerings (IPO), which was finally starting to show a nascent recovery after a dismal showing in 2009. (Learn more about the IPO market, see: The Murky Waters Of The IPO Market.)
Over the last two years, the IPO market slowed dramatically, due to the fall in the stock market and risk aversion by investors. In 2007, 272 IPO deals came to market, raising $60 billion. Only 43 IPOs were priced in 2008, raising $28 billion, followed by 63 in 2009, raising an even lower $21.9 billion.

The low point was the first quarter of 2009, when only one deal was priced. Mead Johnson (NYSE:MJN), which was spun out by Bristol-Myers Squibb (NYSE:BMY), sold shares at $24 per share. That turned out to be one of the best deals in recent memory, as the stock is selling near $46, close to a 100% return in a year.

Things started to pick up toward the end of 2009. The fourth quarter saw 32 IPOs come to market, followed by seven in January, 2010.

IN PICTURES: 7 Forehead-Slapping Stock Blunders

Current Problems
The market sell off has changed the tone of the market. Terreno Realty has cut its offering size twice in the last two weeks. The company was originally scheduled to sell 15 million shares at $20 per share, but cut that to 10 million shares in January, 2010. The company is now reportedly offering 8.75 million shares, raising approximately $175 million.

Terreno Realty is a real estate investment trust (REIT) that intends to use the funds to acquire industrial properties in six coastal areas in the United States.

Many companies that filed for IPOs didn't even make it as far as Terreno Realty, as several postponed deals. Patriot Risk Management, which provides worker's compensation insurance, postponed its deal for a week, after cutting the pricing range from $12-8 per share.

Imperial Capital, an investment bank headquartered in California, shelved its IPO due to market conditions.

Current Successes
One of the few success stories so far in 2010 is Ironwood Pharmaceuticals (Nasdaq:IRWD), a biotechnology company that is developing a drug to treat irritable bowel syndrome. The company priced its deal in early February, selling 16.67 million shares at $11.25 per share, below the expected range of $14-16.

In November 2009, Ironwood Pharmaceuticals announced successful Phase III clinical trial results for Linaclotide. The company is developing the drug in partnership with Forest Labs (NYSE:FRX)

The Bottom Line
The IPO market, which started to rebound late last year as confidence returned to equity markets, may be in for a tougher road than many thought, as the IPO market gets caught up in the recent market sell off.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!