(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 (Reuters) - 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 M&A process.
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 data.
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.
“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 desirable.” (Reporting by Clare Baldwin and Soyoung Kim; Editing by Gary Hill)