Wilting IPOs show exuberance not yet irrational
The lackluster reception for Thursday’s slew of U.S. initial public offerings may be a downer for companies contemplating a public listing on U.S. exchanges, but it shouldn’t be discouraging for everyone else. It suggests investors are still being sensibly choosy even though financial markets are awash with easy money.
There has been plenty of talk of bubble trouble. Rock bottom interest rates around the developed world and the return of infectious confidence have raised fears that the rapid recovery in stocks and bonds over the past year is unsustainable. Yet investor exuberance doesn’t look completely irrational just yet.
Of the seven IPOs on U.S. stock exchanges on Thursday, all but one — software company SPS Commerce — initially priced at or below the bottom of their expected ranges the night before. Most of the new stocks did no better than holding steady once they started trading, either. Two fell, including Mitel Networks whose shares dropped around 12 percent on their debut. Three others closed unchanged from their initial prices, while just two managed a first day pop, notably SPS which gained 13 percent.
The clutch of deals made it the busiest day for new listings since November 2007, but it’s hard to argue that investors were knocked over by a wave supply. Deal sizes were below average, with the biggest from investment company THL Credit just shy of $200 million.
Instead, investors seem still to be discriminating, as they have for much of this year. Of the 39 IPOs in 2010, only five have priced above their expected ranges, according to Renaissance Capital.
That’s hardly great news for underwriters keen to clear the backlog of an estimated $20 billion worth of deals. But it’s at least a sign that U.S. markets are still resisting some of the many temptations of easy money.