(Reuters) – Shares in RailAmerica Inc (RA.N), which owns and operates freight railroads in North America, fell as much as 7.9 percent in their debut on Tuesday, signaling that the appetite for private equity-led IPOs may be weak.
RailAmerica shares, which had already priced below expectations on Monday, started trading at $14.35, or 4.3 percent below the IPO price, and continued to fall. They hit a low of $13.82 and were last quoted in late morning trading on the New York Stock Exchange at $14.13, or a 6 percent decline.
The poor debut follows that of hospital operator Select Medical Holdings Corp (SEM.N) which priced below its range in late September and is now 2.7 percent under its IPO price. Select Medical’s largest stakeholder was private equity firm Welsh Carson Anderson Stowe.
Florida-based company RailAmerica, which is owned by private equity funds managed by a unit of Fortress Investment Group LLC (FIG.N), sold 22 million shares, for $15 each, on Monday. Fortress increased the number of shares it was selling in the IPO by 1 million.
A number of private-equity backed IPOs have raised less than expected and fallen in their debuts, which some analysts have blamed on pricing.
“You are seeing more aggressive pricing, which makes sense because private equity owners want to cash out and want as much as possible,” said Eric Guja, a research analyst with Connecticut-based investment firm Renaissance Capital.
RailAmerica’s debut marks the company’s return to the Big Board following a $1.1 billion buyout by Fortress in February 2007.
RailAmerica plans to use the net proceeds of about $150 million mostly to pay down debt.
In the first half of 2009, RailAmerica had sales of $206.4 million, down 19 percent from the year-earlier period, while profits rose fourfold to $19.2 million over the same period.
Its customers include chemicals, coal and food companies.
(Reporting by Phil Wahba, editing by Dave Zimmerman and Gunna Dickson)