(Repeats story from Friday, Aug. 27)
* Weak markets force steep discount, curb IPO appetite
* Low valuations sparking M&A boom
* IPOs including Freescale on hold-source
* More companies seek dual-track IPO, sale process
By Clare Baldwin and Soyoung Kim
NEW YORK, Aug 27 Languishing stock prices have
put a brake on companies' bids to tap public markets for new
capital, while sparking a whirlwind of mergers and acquisitions
from firms rushing to take advantage of cheap valuations.
A number of U.S. companies have delayed their plans for an
initial public offering after recent issues suffered in a weak
stock market and forced a steep IPO discount, bankers said,
adding that more companies are engaging in a dual-track IPO and
The prospect of a continued fragile economy and choppy
stock market conditions is making IPOs a less attractive way to
raise capital, and more companies are considering a sale
instead, bankers said.
"If the IPO market is choppy, that gives a leg up to M&A
and more of those (deals) may end up converting to M&A
opportunities," said Richard Truesdell, co-head of the global
capital markets group at law firm Davis Polk & Wardwell LLP.
"A lot of the IPOs that are just sitting there languishing
are because people are doing an M&A process and haven't reached
the end of that road," he said.
About two-thirds of companies currently pursuing an IPO are
pursuing a sale simultaneously, in what is known as a "dual
track" process, compared with one-third of IPO candidates
typically, Truesdell said.
To date, 2010 has been the weakest of the past five years
-- financial crisis years included -- for new issue pricing in
the United States. Nearly a third of all U.S. IPOs have priced
below range, according to Thomson Reuters data.
In August, more than half of the IPOs have priced below
range without a single deal pricing above, according to the
How closely the final IPO price matches the range the
company filed for and how much that price is discounted from
competitors' share prices are both measures of the health of
the IPO market.
The IPO discount, the percentage below competitors' share
prices that an IPO sells for, may be too steep for some
sellers, said one banker who declined to be named.
Blackstone-backed Freescale Semiconductor, for example, has
put on hold its plans for an IPO after the pricing and debut of
Dutch chipmaker NXP Semiconductors N.V. (NXPI.O), according to
a banker familiar with the matter.
NXP priced 28 percent below the midpoint of its price range
and closed nearly 21 percent below its IPO price on Friday.
"Given that some of the strategic buyers out there have
cash on the balance sheet and the financial sponsors have cash
they are looking to put to work, the dual track M&A route is
competing with the IPO process on what is the more attractive
outcome," said Frank Maturo, co-head of equity capital markets
for the Americas at Bank of America Merrill Lynch.
Even as IPOs have faltered, M&A activity in the United
States is picking up.
Intel Corp (INTC.O) last week announced plans to buy
security software maker McAfee Inc MFE.N and Dell Inc
DELL.O is engaged in bidding war with Hewlett-Packard Co
(HPQ.N) for 3PAR Inc (PAR.N).
"In this market, you have to be opportunistic. It's
valuations, but also the capital market environment. When the
stars are aligned -- that is, a buyer's interest and the
ability to finance a deal are aligned -- you have to take
advantage of that," said Scott Humphrey, head of U.S. M&A at
BMO Capital Markets.
"The window may be shut down and make the deal a lot less
(Reporting by Clare Baldwin and Soyoung Kim; Editing by Gary