Nasdaq Services, Listing Switches Mitigate IPO Drought

(Reuters) – An extended dearth of initial public offerings in the United States is more harmful than meets
the eye.

Not only is it starving companies of much-needed capital and investment banks of fees, it is also depriving major stock exchanges, such as Nasdaq OMX Group (NDAQ.O), of the listing fees and prestige that come with a roster of newly public companies.

But Robert McCooey, Nasdaq’s senior vice president for new listings, said in an interview Friday that the exchange is not waiting for the markets to turn around.

Nasdaq is heavily marketing services such as its market data tools and press release distribution to prospective IPOs when they are still private companies, so that the companies will lean toward Nasdaq when they conduct their IPO, he said. “The most important focus for us is to use our products and services suite to nurture and draw these (IPO) prospects,” McCooey told Reuters.

There have been only two IPOs in the past six months, including a $145 million deal in November by online college operator Grand Canyon Education Inc (LOPE.O), the most recent to list on the Nasdaq.

Security firm O’Gara Group (OGAR.O), the most recent company to attempt a Nasdaq IPO, shelved its plans in mid-February.

Beyond trying to hook IPO candidates on its services, Nasdaq is also trying to cope with the offering drought by luring large-capitalization companies from NYSE.  Earlier this week, shares of DreamWorks Animation SKG (DWA.O), the film production company behind the animated movie “Kung Fu Panda,” made its debut on the Nasdaq after more than four years on the NYSE since the company’s IPO.

Eight companies moved from the NYSE to the Nasdaq last year, including media company News Corp (NWSA.O) and software company CA Inc (CA.O), while seven moved in the other direction, including job website operator Monster Worldwide (MWW.N). Nasdaq’s idea is that having a broader array of companies
will attract more kinds of IPOs given that companies often prefer to be listed on an exchange with peers.

“There is certainly a link between our success in the listing switches and the interest in a Nasdaq listing by IPO candidates,” McCooey said. “We’ve gotten our message across that we are known for tech, but our listings span a wide spectrum.”

Nasdaq has historically been known for deals by technology and smaller capitalization companies. About 60 percent of Nasdaq-listed IPOs since 2000 have been in technology and healthcare-related fields, while NYSE IPOs have been heavily represented by financials, energy and real estate. But NYSE remains a draw for many of the largest deals, including the largest-ever IPO, a $19.7 billion deal by Visa (V.N) last March and the most recent IPO, an $828 million stock flotation in February by pediatrics nutrition company Mean Johnson Nutrition Co (MJN.N).

Overall since 2000, Nasdaq has seen 954 IPOs with proceeds of $110.5 billion, slightly more than half than the proceeds of NYSE’s 376 deals. The Mead Johnson deal showed that there is “pent-up demand” for IPOs, McCooey said, but cautioned that no regular stream of IPOs can emerge as long as the markets remain volatile. McCooey pointed in particular to sectors such as alternative energy and healthcare which he predicts will be the first to emerge when the IPO markets reopen, and will be the most likely to benefit from the federal government’s $787 billion economic stimulus package.

“You don’t want to start your road show, then get one of those 2-3 percentage point moves two, three days in a row then try to price,” McCooey said. But he said there are IPO-specific investors just chomping at the bit for new issues. “Some people like to invest in IPOs, and when they see quality, they jump,” McCooey said.

(Reporting by Phil Wahba, editing by Matthew Lewis)