This probably won’t come as a shock to you: we’re likely to lose some momentum in the IPO market in the second half of this year. Of course, 75 per cent of the companies scheduled to go public this week have yanked their listings (at least temporarily), and the pain we’ve been subjected to tells the rest of the story.
According to PwC, 79 IPOs were completed in the first two quarters of this year, generating $24.3 bn in proceeds. That beats the same period in 2010 in terms of value by more than 100 per cent (70 IPOs raising $9.4 bn). The accounting firm notes in a statement that this year was starting to look like the best for the IPO market since 2007.
And then the market decided to get ugly on us.
According to PwC, the S&P 500 Volatility Index, or VIX, surged to above 47 on Tuesday, which has had a predictable effect on the IPO market, especially since the VIX had generally been falling this year and was approaching 15, which is considered favourable territory for IPOs. The VIX reached its lowest in recent years back in 2006, when it closed in on 10. PwC notes that this was a ‘high point for historical IPO activity’.
Henri Leveque, leader of the capital markets and accounting advisory practice at PwC, says in a statement: ‘At the close of the second quarter, we were optimistic that the proceeds from IPOs completed in the second half of the year would lead 2011 to eclipse the full year 2010 proceeds of $39 bn; however, disruptions in the overall market and a variety of recent macroeconomic events may present considerable challenges for companies looking to execute an IPO in the coming months.’
He adds: ‘The summer months, particularly August, are typically a slower time for IPO activity, so it will remain to be seen how quickly market stability and confidence returns and whether those companies waiting in the wings will move forward with their IPO plans come September.’
There does seem to be a silver lining, however. According to Leveque, ‘Companies that successfully execute an IPO in the coming months will have taken a long-term approach and undergone careful planning, thereby helping them to be ready to successfully navigate unforeseen market events.’
He continues, ‘Potential issuers often underestimate the time and effort that goes into embarking on life as a public entity. No one can predict when the window will open or shut; however, companies that are well-prepared will have the flexibility needed to take advantage of market conditions and be able to access the IPO market when the timing is right.’