Investors more selective; smaller first-day gains
The Nasdaq's recent plunge is expected to crush a record run of initial public offerings, injecting a note of fear into the market that will send weaker deals scurrying off the calendar and slash the gains among stronger companies willing to brave the storm.
The break in the Nasdaq comes at a critical time in the IPO pool, which has seen a record flood of companies filing to go public. So far this year, 313 companies have filed with the Securities and Exchange Commission to go public, vs. 140 companies in the year-earlier period, according to Thomson Financial. And many IPOs have seen spectacular gains on their first day of trading.
Is the IPO party over? Are new companies going to find it much more difficult to raise money by going public? Could that dampen growth?
Cordell professor of finance, University of Florida, Gainesville
The simple answer is no, barring dramatic falls in the Nasdaq index. The recent stock market turmoil mainly affected tech stocks, specifically Internet stocks, and this is only one segment of the economy. The technology sector has been dominating the IPO market, but it might be a healthy development that the technology sector is cooling off after a period of overheating.
The red-hot Internet stock market has been crowding out other companies, and the cooling off might actually make it easier for other companies to go public. The thought in the back of my mind is if the Nasdaq were to continue to fall, then I can see the IPO market drying up as it did in September and October 1998 after a plunge in the Nasdaq index. But the IPO market recovered when the Nasdaq index recovered. This could definitely dampen growth in the overheated Internet sector and that's a good thing because the frenzy in the Internet sector is not sustainable. But, for the rest of the economy, I don't see a big impact.
Research director, WorldFinanceNet.com., Sarasota, Fla.
Yes, the party is over and a little bit of the hangover is on. The days when 50 percent of a week's IPOs are doing 200 percent-plus are history. We're seeing a return to more traditional IPO evaluations. We are going to see more first-day gains in the 40 to 60 percent range vs. the 200 to 400 percent range. But this is a good situation. Here's why: First, it puts more money into the issuing company rather than in the pockets of flippers. Second, it reduces the volatility that investors face. Good quality companies will have no problem. Marginal companies will have to think twice. The ones that are average companies, that are pretty good but with nothing spectacular about them, they are the ones that really feel the pinch when the market tightens.
Yes, it will slow the pace of deal-making, the number of IPOs coming. Will it slow the pace of technical innovation? No. The frame-breaking companies will not find their access restricted. There is always room for good companies.
Co-chief executive officer, Wit SoundView, New York
I don't think it was a party to begin with. I think it was, in fact, increased dramatically by individual participation in the IPO process for the first time. The correction we have seen is just a rational consolidation that I believe creates a strong platform for future IPOs.
I think the market will be far more selective. I think there will be sector shifts. And I think there will be a much greater emphasis on generation-two and generation-three technology developments. Today's cell phone is generation one. The one you read about is generation two. Generation three is in the lab today, and that's where investors will put their money.
Managing director of equity capital markets, CIBC World Markets, New York
The quick answer is no. What has happened is the market has bounced back and all the deals that have been delayed are back on track and it looks like they're getting done. The market has again developed a positive tone and as a consequence the people who were skittish a week ago have had a change of heart.