The oscillating public markets have not been welcoming to private equity-backed initial public offerings of late.
Macroeconomic factors such as the unstable eurozone and US credit downgrade have caused the Dow Jones Industrial Average and S&P 500 to yo-yo throughout August and early September.
The coffee has also gone cold for Dunkin’ Brands. Less than two months after its initial public offering, the parent company for US restaurant chains Dunkin’ Donuts and Baskin-Robbins was downgraded by one of its underwriters, Goldman Sachs, to “sell”.
The company’s stock price has remained steady since the downgrade, however, closing at $26.83 Wednesday, well above its IPO pricing.
In the first half of 2011, the IPO market seemed to be bouncing back after three tough years – and private equity-backed offerings were leading the charge, accounting for 69 percent of the $32.2 billion raised from US IPOs through 27 July, according to data provider Dealogic.
“There was clearly pent-up demand,” says Tony Klaich, a private equity partner in Crowe’s Risk Consulting Group. As one general partner colourfully put it, private equity firms were like “hardcore fans” at a rock concert, ready to rush the stage as soon as the gates opened.
Early-year offerings set the tone. HCA Holdings, backed by Kohlberg Kravis Roberts, Bain Capital, Bank of America’s private equity unit and the founding Frist family, raised $3.79 billion when it priced at $30 per share in March, setting the record for the largest private equity-backed IPO on record.
Kinder Morgan and Nielsen Holdings, both private equity backed, also held breakout offerings, raising $2.3 billion and $1.6 billion respectively.
But that all changed following Standard & Poor’s downgrade of US Treasury Bonds on 6 August, which sent the market into frenzy.
The S&P 500 Volatility Index, an indicator of investor appetite for IPOs, jumped to over 47 on 9 August; in a healthy market, it rarely goes above 15. According to PricewaterhouseCoopers, half of the 12 IPOs scheduled to price in the second week of August were postponed due to market uncertainty.
“The downturn has affected all new issue activity in the equity market. Any issuers that were on the road are contemplating downsizing, reducing valuation and/or pulling offers altogether,” says Warburg Pincus managing partner Chris Turner.
Magazine subscribers can read more about the IPO market here.