At Friday’s close, the Dow Jones Industrial Average marked its first stretch of two consecutive weekly gains since early May 2008. For the Standard & Poor’s 500 Index, this was the best two-week run since 1974. And the Nasdaq Composite Index, the barometer of the IPO market, also racked up two straight weeks of gains.
It may have been a sign of things to come. Consider:
“After credit markets improve and there is less volatility, and there are a few good IPOs, you’ll see a quick return to an IPO window that will open like a floodgate,” Scott Cutler, NYSE Euronext EVP and Head of Listings for the Americas, told Reuters in an interview published on Friday, the 13th (of March).
Now that’s something to look forward to.
As everybody knows, the IPO traffic over the last 15 months has been very slow and one might say — well below average. Therefore, let’s take a look at what constitutes “average.”
Traffic Patterns
Over the last 39 years, from January 1970 through December 2008, bankers priced 12,540 IPOs, according to U.S. Securities and Exchange Commission filings. That would make 321 IPOs an “average” year.
We have not seen an “average” IPO market in years.
The last time we had an “average” IPO year -– or better — was 2000 when bankers priced 431 deals. But the winds of a bull market were at its back. On March 10, 2000, the Nasdaq Composite Index had closed at 5,048.62, its all-time closing high. Then the stock market started pulling back.
On Aug. 31, 2000, the Nasdaq Composite closed at 4,206.35, DOWN 16.6 percent from its March high. From the beginning of the year through August, bankers were able to get a total of 349 deals out the door. After Labor Day, things went south.
The Nasdaq Composite closed Dec. 31, 2000, at 2,470.52, DOWN 51.1 percent from its March high. The month of December 2000 produced just eight IPOs. And it has been a struggle for both the stock market and IPOs ever since.
Nevertheless, should history repeat itself, we could be in for some good times ahead. Now here’s what may come as a surprise.
A History Lesson
The heaviest IPO traffic did not come – repeat, did not come -– during the Internet bubble era of 1999/2000. It was an earlier period.
From 1992 through 1997, the IPO calendar produced an average of 691 IPOs per year. That’s right -– an average of 691 IPOs per year.
The driving factor, naturally, was the stock market. On Dec. 31, 1997, the Nasdaq Composite closed at 1,570.35, UP 167.8 percent from its close at 586.45 on Jan. 2, 1992.
But the 1980s produced a couple of great IPO years as well. Bankers priced 728 IPOs in 1986 and another 556 deals in 1987.
Here’s the “average” annual IPO traffic flow over the past four decades:
- In the 1970s: 127.0
- In the 1980s: 384.5
- In the 1990s: 568.1
- In the 2000s: 164.1
The recent IPO market has been lagging. Last year, investment bankers priced 49 deals and this year, only two IPOs so far. The best you can say for the current stock market is that it is in a bear market recovery phase.
At Friday’s close, on March 20, 2009, the Dow Jones Industrial Average was up 11.2 percent from its March 9 closing low, which was its closing low for the year; the S&P 500 was up 13.6 percent from its March 9 closing low and the Nasdaq Composite was up 14.8 percent from its closing low on March 9. Incidentally, the March 9 closing levels were also the S&P 500’s and the Nasdaq’s lowest closes for 2009.
What’s the Message?
In the meantime, last week’s IPO developments resembled a message in a bottle.
Three companies withdrew plans to go public, but that news is hardly any indication of a collapsing IPO market.
Two deals had been in the pipeline for ages. They were: kgb (Google profile), a provider of branded directory assistance services in Europe, which had filed in December 2007 to go public, and Omneon (Google profile) a provider of digital content storage and processing systems, which had filed in December 2006 to go public.
There also was an addition to the IPO pipeline last week, which turned out to be very unusual –- a filing with proposed pricing terms, accompanied by an offering date.
China’s Got Game
Changyou.com (Nasdaq: CYOU proposed), a Chinese online game provider, filed for an IPO on Tuesday, March 17, to offer 7.5 million American Depositary Shares at $14 to $16 each. And the deal leaped onto the IPO calendar to be priced the evening of April 1 to trade on Thursday, April 2.
That was quick. But more about Changyou.com and previous Chinese IPOs next week.
As Mr. Cutler told Reuters, after the credit markets improve and Wall Street has seen less stock market volatility and a few good IPOs, you’ll see a quick return to the IPO window and “it will open like a floodgate.”
Now we wait for history to repeat itself.