Facebook led US initial public offerings (IPO) to their worst monthly performance since Lehman Brothers Holdings Inc collapsed, as Europe’s debt crisis scuttled IPO plans from New York to Hong Kong.
The Bloomberg IPO Index, which tracks US equities in the first year after their IPOs, sank 15 per cent last month, with Facebook posting the worst one-week performance among the 30 largest US IPOs since 2011. The IPO index’s decline is in line with the drop in October 2008, the month after Lehman’s bankruptcy triggered the worst financial crisis since the Great Depression.
Kayak Software Corp and Russian social network company VKontakte shelved listings this week, while Graff Diamonds Corp delayed a Hong Kong sale and the Formula One racing series said its Singapore IPO may not occur until later this year. Facebook’s 22 per cent slump since going public has shaken investors already reeling from tumbling equity markets and the slumping European economy, said Jeffrey Sica of Sica Wealth Management.
“We’ve reached a breaking point where sentiment is so negative and scrutiny is so high that companies don’t want to go public and investors aren't prepared to look at them,” said Sica, who oversees more than $1 billion as chief investment officer of the Morristown, New Jersey-based firm. “You’re talking about long-standing damage to the psyche of companies wanting to go public and investors.”
At least 13 IPOs have been withdrawn or postponed globally since Facebook’s May 17 offering, slowing a market for deals that’s struggled to keep momentum as US stock values have failed to recover to levels before the financial crisis. There have been 192 IPOs globally since the beginning of April, putting this quarter on pace to be the slowest since 177 initial offers were completed in the three months through September 2009, Bloomberg data show.
Facebook completed the biggest technology IPO on record just as offerings were drying up, and has since lost more than $20 billion in market value. No other companies have completed or set pricing terms for US IPOs since the Menlo Park, California-based social networking company raised $16 billion.
Laser hair removal company Tria Beauty, computer memory component maker Corsair Components and CyOptics, a network technology provider, have all postponed or withdrawn US IPOs in the wake of Facebook. Kayak, the Norwalk, Connecticut-based online travel service, was scheduled to begin its IPO roadshow recently and postponed following Facebook’s drop, according to a person close to the situation.
Formula One chief executive officer Bernie Ecclestone said recently that Formula One could complete its initial share sale in Singapore by the end of the second quarter. On Thursday, he said the offering may have to wait, partly because of volatile equity markets. The Chicago Board Options Exchange Volatility Index rose 40 per cent in May, the largest monthly gain since July.
London-based jeweller Graff Diamonds also suspended its $1 billion IPO in Hong Kong, citing “consistently declining stock markets.”
VKontakte founder Pavel Durov said May 29 that Russia’s largest social networking website would postpone its IPO indefinitely. The company had revisited plans for a sale initially following Facebook's IPO, people with knowledge of the discussions said last month.
Facebook’s IPO price indicated a market value of 107 times trailing 12-month earnings, more than all but two companies in the S&P 500 at the time of the offering, according to data compiled by Bloomberg. Technology companies seeking high valuations in initial sales will need to “come down to earth” to attract investors after Facebook’s post-IPO decline, said Nabi, who says he didn’t advise clients to subscribe to the IPO.