Many Stock Offerings on Hold Until Dust Settles
The gyrating stock market and lukewarm reception for recent initial public stock offerings are causing more companies to shelve plans for new and secondary stock sales.
The market that was once white-hot, especially for high-technology and medical issues as well as for small companies, has cooled considerably in the last month, industry analysts say.
“Anything in technology right now is kind of on hold,” said Hans Luft, an analyst at investment banker Rodman & Renshaw Inc.’s Boston office.
Small-company stocks, including many high-tech and biomedical issues, typically trade on the Nasdaq market, which has absorbed much of the recent sell-off. The Nasdaq composite index closed Thursday at 1,062.39, down 15% from its high of 1,249.15 on June 5.
Nationwide, an “unusually high” 117 offerings had been postponed or withdrawn through Wednesday, said investment banker Byron Roth, president of Cruttenden Roth in Irvine. In the same period last year, 89 were delayed or dropped.
On Wednesday, Hot Topic Inc., a Pomona retailer of music-related apparel and accessories, pulled its initial offering because of poor market conditions. On Monday, Reno-based Reno Air Inc. shelved a planned secondary offering “due to a general decline in market conditions.”
Last week, Internet access provider EarthLink Network Inc. in Pasadena postponed its initial offering until “market conditions are more favorable,” said founder Sky Dayton. Among other deals postponed this month was a secondary offering for Premier Laser Systems Inc., an Irvine maker of medical lasers.
Even though the stock market gained Thursday, it’s still too unsteady for offerings, said John Whates, a partner at the Costa Mesa office of the accounting firm Deloitte & Touche. “If it stays choppy, they won’t go to market,” he said.
In addition, the backlog of offerings is growing, Roth said. In the first half of the month, only half the companies with offerings in the pipeline went public. In the previous two months, more than 80% of the offerings were completed.
Too often in the last year, analysts said, money-losing companies have cashed in as a flush Wall Street was willing to bet on high-tech products with a promising future down the line. But the frenzy is over, they said.
“The market is looking for revenue and earnings right now, not in three or four years,” Luft said. “Investors are concerned about the level of risk at companies that don’t have earnings now.”
Companies that are putting their issues out are cautiously reviewing the market and lowering their pricing expectations.
Printrak International Inc., for instance, had hoped to sell its 2.5 million shares at $9 to $10 each. But the Anaheim-based maker of automated fingerprint identification systems settled on a price of $8 for its initial offering July 2.
The company didn’t miss its target by much though, and Kevin McDonnell, chief financial officer, said executives are glad they moved when they did. “We feel like we just made it,” he said.
Like most recent new offerings, Printrak’s stock has since gone down, hitting a low last week of $6.50 before rising again. It closed Thursday at $7.50 a share. But McDonnell said executives aren’t “overly obsessed or concerned” about the price, which they consider to be part of overall market conditions now.
Research Engineers Inc., a small, profitable Yorba Linda engineering software company, originally planned to go public late last month with a $10.1-million offering but waited, and now is likely to issue stock today, said Brian Paul, chief financial officer. The price is expected to be between $6 and $7.50 a share.
Paul acknowledged that market conditions play a role in the timing of a new issue, but he said the recent slump “doesn’t have much of an effect on an IPO like ours. We’ve got profits, we’ve got a track record. We’re not just all projections.”
Companies with little or no earnings but great prospects down the road are most susceptible to investor wariness. While profitable companies can expect to garner lower-than-expected prices for their issues, Roth said, marginal and money-losing companies “may not be able to get their deals done.”
It’s a far different climate than a few months ago. Only last November, investors rushed to buy stock in Sync Research Inc., even though the Irvine computer networking company had lost money for the previous four years and its $11.9 million in sales the previous year was nearly $10 million short of projections.
Sync saw its shares more than double in value in its first day of trading, and the price soon reached a high of $56 a share. But the price has plummeted since, though Sync recorded a $926,000 profit for last year. The stock hit a low of $9.25 during Thursday’s trading before closing at $9.625 a share.
Premier Laser, which has lost nearly $13 million in the last three years, had hoped to raise $26.3 million in its secondary offering. Executives are reconsidering the pricing and size of the offering, a spokesman said Thursday.
“I think Premier Laser will do OK,” said David Anast, publisher of Biomedical Market Newsletter in Irvine. “It won’t command a premium price but does have a track record.”
Companies will have to become more patient, said Richard A. Smith, a managing director at Montgomery Securities in San Francisco. “The world has not come to an end, it’s just become extremely selective.”
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Slowing Down
The sharp pullback in the stock market has forced many private companies to postpone initial public stock offerings. The IPO market had raged through the spring as investors hungered for hot new stocks, but many investors now are shunning such high-risk issues. Weekly totals of dollars raised by initial public stock offerings, in millions:
$185*
*Through Thursday
Source: Securities Data Co.
