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.
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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.
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.
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