Fewer IPOs Going Back For Seconds

NEW YORK (Reuters) – Investors are showing scant appetite for follow-on share offerings by new public companies, signaling that even those that have pulled off an IPO in the current climate will find it hard to come back for seconds.

The market for IPOs in the United States has largely seized up since August, with only one offering since then, a midsize deal in November by on-line university operator Grand Canyon Education Inc (LOPE.O: Quote, Profile, Research, Stock Buzz).

But follow-on offerings by companies that have gone public since January 2007 have not proved more tempting for nervous investors, many of whom are under water on their IPO buys.

The newly listed companies also have to compete for funds against financial companies that are recapitalizing after suffering billions in losses during the financial crisis.

In a bull market, companies typically try to raise another round of capital six months after they go public and the “lock-up” period during which insiders cannot sell or trade shares has expired.

“In a good market, it’s almost a given that six months out, you’ll see a secondary (offering) that will be well received. That’s just not the case right now,” said Ben Holmes, publisher of Morningnotes.com, an equity capital markets research firm based in Denver.

Since August, there have only been three secondary offerings by companies that have gone public in the last two years. The largest was a $284.6 million issue by Chimera Investment Corp CIM.N, a subsidiary of Annaly Capital Management, according to Thomson Reuters data.

Chimera, which invests in residential mortgage loans, went public in November 2007 in a $500 million IPO.

Only two of the 22 IPOs launched between January and late May, and whose lockup periods would now be over, have launched secondary offerings.

They are medical device maker CardioNet Inc (BEAT.O: Quote, Profile, Research, Stock Buzz) and hospital staffing services provider IPC The Hospitalist Co Inc (IPCM.O: Quote, Profile, Research, Stock Buzz). Both are among the few companies that launched IPOs this year that are still trading above their offer price.

Companies often rely on follow-ons to make up for a smaller-than-expected IPO, or to maximize the capital they can raise when their shares are doing well, with the proceeds often larger than those of the IPO.

The 31 companies that have both gone public and done a follow-on since early 2007 have collectively raised $7 billion through a second offering, outstripping the $6.2 billion generated by their IPOs.


The volatile market in recent months has made it hard for investors who might have wanted a cut of those follow-on offerings, Holmes said.

Making room in their portfolio for more shares in a given company would mean “jettisoning” some assets at a time when it may be difficult to do so, he added.

“The audience they had for their IPOs may not have the liquidity to make further investment without selling something, which these days means selling something at a loss,” he said.

Another factor has been the crowding effect of huge secondary share issues by banks and insurers.

Since the beginning of the year, there have been 56 share offerings by financial industry companies, with proceeds of $94.8 billion, including a $12.6 billion issue by Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz) in November and an $11.5 billion follow-on by JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) in September.

In contrast, 32 IPOs this year have yielded $26.7 billion.

“Forget about IPOs and forget about follow-ons, except for financials now,” said Richard Schultz, president of Triad Securities Corp, a brokerage firm. “That’s what filling the pipeline now.”

He added: “Since this crisis has picked up speed, they basically are taking all the oxygen in the system.”

With capital markets still absorbing the big issues and IPOs all but gone, there isn’t a single IPO scheduled for pricing, so follow-ons by recent IPOs are not likely to come back any time soon.

By Phil Wahba
(Editing by Brian Moss)