Facebook was characterized as a “flop” in a New York Times article that suggests that any future IPO issues are in trouble. What are the implications of the FB transaction to other companies hoping to sell their shares publicly?
Short-term: The New York Times indicated that “would-be [IPO] issuers are taking a second look at what they are getting into.” Not only are these companies preparing themselves to deal with increased regulation (reporting to the SEC), they will also be accountable to a large number of new constituents, those who buy their shares. And, being subjected to unsettled conditions while their stock is being priced may be too much drama for many of these companies. So, some are pulling IPO deals because of market volatility associated with a poor stock market, the growing problems in Europe and increasing pessimism affiliated with the FB IPO.
Investors are becoming more concerned with safety than buying into new and exciting offerings “from companies with [abbreviated] public track record[s].” As an aside, the Treasury market is booming, and yields are reaching all-time low levels: U.S. Treasuries are the safest place to put cash in this global environment.
The Times story indicates that the FB debacle has made a weak market even weaker and has sapped the confidence out of investors.
Medium- and long-term: “So far this year, 73 companies have priced offerings [IPOs], raising $29.1 billion, according to Thomsen Reuters.” FB accounts for more than half of the total.
Experts agree that IPOs are one of the most risky investments. Investors, drawing upon the lessons learned in the FB deal, will begin to demand larger discounts to IPO offering prices to compensate them for the negativity in the market.
The flip side of this is that issuers may be hesitant to move forward with IPOs because the proceeds per share will be under pressure, as investors attempt to increase their upside.
The article refers to investors waiting to take companies public, such as private equity firms. The back end of the private equity process is in flux until conditions return to normal. These firms look to the equity markets to monetize their holdings for their investors. Generally, private equity investors are among the most aggressive banking clients relating to pricing of their IPOs.
The FB IPO has inspired the market place to draw back, as many were disappointed that the FB deal did not positively stoke the market. But the performance by FB is only one issue depressing investors. European turmoil, economic and political, along with lower growth rates in China, India and other large lesser developed countries are creating angst that will have far greater impact on new deals than FB.