Record Number of Companies Pull Back on IPOs

Tuesday, 20 Sep 2011 01:17 PM

By Michelle Smith

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Private companies are choosing to stay private. A record number of companies that had planned initial public offerings, or IPOs, have pulled back because they feel it is too risky to try to raise capital through the stock market right now, CNBC reports.

Data firm Dealogic says that a total of 215 IPOs have been withdrawn or postponed so far in 2011, surpassing the 214 that were yanked in the terrifying months preceding the Lehman Brothers collapse at the end of 2008, CNBC reports.

Breaking those figures down on a monthly basis, The Wall Street Journal says Dealogic reported that U.S. IPOs, were running at a monthly average of 12 deals worth $4.2 billion through July of this year, but slowed to just three IPOs worth $867 million in August.

Groupon is one example of a highly anticipated IPO that is being delayed. Though it is not technically being labeled a pullback, The Wall Street Journal says a source reported that Groupon planned to go public after Labor Day and to price its shares in mid-September. Now the company “is reassessing its timing on a week by week basis,” the Journal reports.

David Menlow, president of IPOfinancial.com told The Wall Street Journal that the drop in the market has got everybody running scared.

Investors will err to the low side regarding IPO valuations right now given market conditions, Adam Muller of hedge fund Chester Hill Capital told CNBC. “The window that produced Zip Car, Pandora, etc. is closed,” he added.

There are concerns that if companies go public and their stocks take a hit it will affect their ability to raise money thereafter.

Roger McNamee, co-founder of Elevation Partners and a large investor in Facebook, told CNBC that Nasdaq and the NYSE are no longer about “capital formation” but making revenue on trading volume. Until the exchanges get back to focusing on capital formation, the pressure to go public won’t be there, he added.

While companies may believe that they are making the smart move by holding off, Bill Gurley, a general partner with venture firm Benchmark Capital, told Fortune that IPO pullbacks can have serious consequences.

The longer a company remains on file without pricing, the more questions arise about "why" the company may be struggling to move forward, Gurley told Fortune.

He also adds that to file and not price is to give up all the benefits of being private with none of the gains of being public. You have been exposed, but you have nothing to show for it.

Whatever the reasons and the consequences, CNBC says Dealogic calculates that private companies have left a record $44.1 billion in capital on the table on concern it could be cut in half before their eyes.

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