(Reuters) — Many companies gearing up for initial public offerings in the United States are expected to stick with their plans despite a wave of discounted pricings this week, though the size of their stock sales could be cut, industry experts said on Thursday.
Four companies announced offering prices below the expected range this week, the first string of IPO pricings since the stock market plummeted in August. The market has remained choppy amid concerns over an economic slowdown in China and the prospect of higher interest rates.
The CBOE volatility index, essentially Wall Street’s ‘fear gauge,’ has recently lingered above the 20 mark, which many IPO investors view as the threshold between an open and a treacherous IPO landscape. That is well above its level for most of the past 12 months.
Despite that, many issuers look set to stick to their guns.
“When we talk to companies about going public, they have a long-term strategic vision in mind. It is not about near-term volatility,” said Phil Drury, head of Europe, Middle East and Africa capital markets origination at Citigroup Inc.
This week was testing for issuers. Private-equity firm Blackstone Group LP’s food distributor Performance Food Group Co and HIG Capital LLC‘s surgical center operator Surgery Partners Inc both priced their IPOs this week at heavy discounts to their expected range.
They were joined by biotechnology companies Edge Therapeutics Inc and Mirna Therapeutics Inc.
However, the market got a big confidence boost on Thursday when private-equity firm KKR & Co LP‘s credit card processor First Data Corp, which was the subject of one of the largest leveraged buyouts of all time, pressed ahead with its stock market listing plans. It said it intended to raise up to $3.2 billion in what could be this year’s largest IPO.
For private equity owners of companies, a listing is an important opportunity to cut their debt if they want to take advantage of debt financing markets before they become more expensive.
Biotechnology companies need the capital to continue funding drug development. For technology companies, an IPO is often necessary to retain and reward employees who are given stock options. Some Silicon Valley millionaires are keen to cash out.
Momentum in IPO planning can also be hard to stop, once a company puts time and money into the project.
“A lot of times people say let’s move on and just do a smaller float and then show Wall Street how great we are and beat and raise expectations,” said Daniel Klausner, who leads the capital market advisory practice at PricewaterhouseCoopers. “People are still getting ready, and they’re planning to launch.”
There are financial incentives too. First Data executives, for example, are set to receive $16 million cash bonuses upon the IPO, according to the prospectus.
To be sure, not all companies retain their confidence in the market. U.S. Spanish-language broadcaster Univision Communications Inc, which filed for an IPO earlier this year, is waiting until early November, so it can assess the quarterly performance of other media companies, according to people familiar with the matter.
Univision declined to comment.
Other IPOs waiting in the wings include those of luxury department store operator Neiman Marcus and mobile payment company Square.
That uncertainty has plagued the IPO market this year, slowing in the third quarter of 2015 to 26 deals, down from 59 in the same period a year before, according to Thomson Reuters data.
“There’s plenty of understandable concern out there,” James Palmer, head of equity capital markets of the Americas at UBS Group AG, said. (Reporting by Lauren Hirsch, additional reporting by Liana B. Baker; Editing by Bill Rigby)