The software firm Trustwave on Wednesday became the ninth company to postpone an initial public offering this week, the latest sign that skittish investors have companies thinking twice about entering a volatile stock market.
Until the stock markets began nosediving last week, 2011 was shaping up to be a banner year for initial public offerings by technology companies. Now the decline has analysts wondering if the moment is already gone.
LinkedIn, Pandora, Demand Media, and others raised billions of dollars so far this year and sparked memories of the late 1990s. In February, Dick Kramlich, co-founder of New Enterprise Associates in Menlo Park, Calif., predicted a “blockbuster” year for IPOs among technology companies.
But that was nearly six months ago, and 2011’s blockbuster companies were not immune to the market drop of the past few days, with LinkedIn's stock dropping as much as 20 percent at one point on Monday. Pandora and Demand Media have taken 50-percent hits from their all-time highs.
“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 billion; 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,” wrote PricewaterhouseCoopers’s Henri Leveque in a statement Wednesday.
The volatility has already scared off most businesses that had originally scheduled their IPOs for this week, according to the investment research firm Renaissance Capital. And the companies that did go ahead with their plans, including data backup provider Carbonite, attracted values well below their original estimates.
Other postponed offerings included InvenSense, which produces motion sensors, and the biotech firm Cathay Industrial.
“No question the current instability in the markets will have an effect. No companies want to go to an IPO if they can’t get their asking price, or more, and no investors want to issue new shares in a rapidly falling market,” said Jack Gold, president of J. Gold Associates, a Massachusetts-based technology research firm. “This is a troubling time for IPOs and smaller tech companies in general.”
The downturn means more uncertainty even for major companies such as Groupon, which has filed for an IPO, and Facebook, which has sparked rumors it will go public but has yet to reveal its plans.
“I think you will see a hiatus in tech IPOs as long as the uncertainty remains in the market,” Gold said. “And the fear is that if the spillover effect hits the economy and creates a recession, the IPOs will be even less attractive as business slows down.”
Groupon and Zynga, a California-based social gaming company, have been two of the most anticipated IPOs this year. Both have filed their paperwork but have yet to schedule a date. Now the stock market plunge has cast doubt on those plans.
Still, analysts saw some silver lining in the otherwise bleak stock situation. Technology companies amounted for 30 percent of IPO deals in the U.S. over the past year, and analysts at Renaissance Capital predicted that tech firms could still become a relative bright spot in the stock market.
“With the financial crisis dampening broader investor interest in IPOs, these tech deals could potentially be diamonds in the rough,” Renaissance Capital said in a statement.
Gold, meanwhile, said the decline in IPOs could open up more opportunities for mergers and acquisitions.
And while tech stocks took a hit overall, Apple was able to hang on and overtake Exxon Mobil as the most valuable company in the world.