Plains All American Pipeline, a Houston-based oil services company, dropped its own IPO plans a few days earlier, noting that “market conditions have substantially deteriorated since the IPO process began in August 2007.”Tully’s Coffee Corporation, Seattle, also withdrew in early February due to “continued volatility in the market.”
Worldwide, 28 initial public offerings expected to raise $10.5 billion were postponed or withdrawn through January 30 versus 10 deals worth $374 million in the 2007 period, Red Herring reported, citing Dealogic figures. RH noted the U.S. IPO pipeline is steady, but the financing that prices the deals has slowed considerably.
Even India, which became the de facto kingdom of IPOs in early 2008, has been struggling of late. Forbes noted last week that the international IPO market has fallen 64 percent since the start of 2008.
So what’s killing the IPOs? Is it an economic downturn or is there more to the picture? Makovsky + Company president Ken Makovsky, citing his own concern over U.S. capital markets, interviewed former client Mitch Gross, founder of Mobius Mangement Systems, on the lack of IPOs recently and came up with three reasons for the IPO glut: government regulation, Red FD, and overly aggressive shareholder activism.
Gross said corporate boards and managers live in fear of making acquisitions or other moves because activists may be ready to pounce if a deal sputters or doesn’t immediately pan out.
He blamed Reg FD for exacerbating shareholder activism because it inhibits management and boards from communicating with shareholders. This, in turn, makes being a public company much less appealing, especially when addition governance and executive compensation measures are considered. Another disclosure vehicle, Sarbanes-Oxley, has acted as a “poor man’s tax” on small companies, he said.
All of this adds up to a preference for private equity over public offerings, at the benefit of wealthier investors.