The stock market's dizzying swings have unnerved not only investors, but have slammed the brakes on the once speeding business of initial public offerings.
Big investment banking companies such as Morgan Stanley Dean Witter, Goldman, Sachs & Co., and BT Alex. Brown Inc. have made fast money bringing companies to the public market over the past several years, but now business is quickly drying up.
No IPOs came to market in the first two weeks of this month.
"The well is dry," said John Fitzgibbon Jr., editor of IPO Reporter, a New York-based newsletter that tracks IPOs. "It is like the Sahara Desert in the middle of summer at high noon."
Clients primed to raise money publicly are postponing offerings; others are scrapping deals, and still others are finding alternative ways to raise capital, experts say.
"It is frustrating," said Edwin Bradley Jr., equity syndicate manager at Baltimore-based Legg Mason, Inc. "It is difficult to get anybody's attention to a new issue."
The global volatility hit the IPO market, which had been humming along this year, like a bucket of ice water in August. Nineteen companies nationwide went public last month, compared with 47 in August 1997 and 61 in August 1996, according to the IPO Reporter .
In the first eight months of the year, 326 companies went public, raising $31.3 billion, compared with 381 deals worth $23.7 billion in the same period in 1997 and 556 deals worth $32.4 billion in the same eight months in 1996.
"The last time we have seen a month this bleak, you have to reach back to September 1974 when none were priced," Fitzgibbon said.
A calm stock market, or at least one that is somewhat predictable, is critical for investment bankers because that allows them more accurately to gauge the price at which investors will buy stock in a company coming to market.
Investors are also more willing buyers, even eager ones, especially for companies perceived as hot.
But when the market goes through wide swings, the investment bankers, who buy the stock in the IPO and sell it to the public, grow nervous.
They fear that they stand too great a chance of losing money if the price falls, and they can't sell the shares to investors.
In addition, company executives are reluctant to try raising money during rough markets. They worry that shares will be sold too cheaply, and the value of the company will shrink.
"When the market comes down, losses pile up on the books," Fitzgibbon said.
09-22-98
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