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IPO candidates await market recovery

Posted: 10 Nov 2008 ?? ?Print Version ?Bookmark and Share

Keywords:IPO? initial public offering?

The year was already shaping up to be a dismal one for initial public offerings (IPOs) when the financial crisis hit and decimated stock markets. Now IPO activity has literally ground to a halt, leaving chip companies and others who planned to go public in limbo. IPO activity may not pick up again until well into next year, experts say.

"In the 35 years I've been covering IPOs, I've not seen a slower period in any given year, not only for tech companies but for IPOs in general," said Scott Sweet, senior managing partner for IPO Boutique, a Florida-based investment advisory service that specializes in IPOs.

There has not been a U.S. IPO since August. According to Renaissance Capital's, 190 companies have current IPO filings with the U.S. Securities and Exchange Commission (SEC). Year-to-date there have been 43 U.S.-listed IPOs and 96 non-U.S. IPOs greater than $100 million in size, down 77 and 69 percent, respectively, from 2007, according to the site, maintained by the Connecticut-based provider of independent research and investment management services.

According to a report released Nov. 3 by the Global Semiconductor Alliance trade group, Q3 was the third in a row in which no venture-backed semiconductor industry companies went public.

At least six companies in the semiconductor and related industries have recently been in the IPO pipeline, having filed S-1 registration with the SEC according to data from IPO Boutique's Web site: Avago Technologies, GCL Silicon Technologies, MagnaChip Semiconductor Corp., Allegro Microsystems Inc., Sonics Inc. and BCD Semiconductor Manufacturing Ltd. None of these companies have a current date for going public, and some have already announced postponements or cancellations.

Postponed plans
Motorola Inc. recently said it would postpone the planned spinoff of its wireless handset division. The company blamed spiraling losses in the division and "stresses in the financial markets." Motorola, which had been planning to spin-off the unit in the third quarter of 2009presumably through an IPOdid not announce a new date for the event.

Investment banks earn huge fees for taking companies public, but they are unwilling to stake their reputations on doing so in the current environment, Sweet said.

Renaissance Capital recently published a study titled "When Will the IPO Market Return?" The study, which compares the current IPO environment with the recession of 1973-1974, concludes that the worst case scenario is that U.S. IPO activity will not resume until March 2009, then "sputter on for several months." The best case scenario is that, after the U.S. elections, motivated issues will "swallow the bitter pill and price their deals right."

"We think it is reasonable to assume that the IPO market will attempt at least a modest comeback in January 2009," according to the study, which is available on Renaissance Capital's

"When there is a period of lower-than-normal IPO issuance, as was the case in the 1970s and for the last seven years, a bounce back can occur without a strong overall stock market simply because there is pent-up demand for capital by private companies," the study says. "We believe that this is now what will play out. Given the rapidity with which investors and corporations respond to changing financial and economic circumstances, we do not believe that the return to the positive performance cycle will take as long as it did in the 1970s."

History lessons
Based on historical data around the length of recessions, Sweet said he didn't expect to see IPOs restart until Q2 09. "My best guess is recessions generallyunless they are severelast nine months," Sweet said. "I think we are clearly in one."

Sweet noted that the last U.S. company to go public was Rackspace Hosting Inc., which hit the New York Stock Exchange in August with shares priced at $12.50. The company's shares opened at $5.48 last Tuesday.

"Certainly it's been a horrible year for IPOs, not only in the limited quantity that came out but in the pricing, which has been very poor," Sweet said. "There's only a handful of that those that came out are still above the offering price, most are cut in half."

Well over 100 companies have filed for an IPO within the past 15 months, according to data available on IPO Boutique's Website. IPO postponements and cancellations are happening almost daily, and not a single company has a date scheduled when it intends to go public, according to Sweet.

According to Sweet, Q2 08 marked the first time in 30 years that the venture capital industry did not bring a single company public.

- Dylan McGrath
EE Times

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