Volatile stock market weighs on IPOs in January, but hope remains for the rest of the year

Volatile stock market weighing on IPOs

NEW YORK — Companies trying to sell their shares in initial public offerings had a hard time finding willing buyers in January — a trend that will likely continue until the stock market stabilizes.

Of the 10 IPOs scheduled for January, only seven made it to market as investors fretted over the Obama administration’s plan to increase regulations on financial companies, growing budget deficits across the world, the Chinese government’s efforts to curtail credit, high unemployment and concern that U.S. stocks got overheated. The Dow Jones industrial average swung more than 100 points in either direction in about a third of January’s trading sessions. Seventy percent of the big moves were declines.

“It’s hard right now,” said Paul Bard, vice president of Renaissance Capital. “The IPO market does not respond well to volatility or uncertainty.”

When stocks calm down, investors should see good stuff: IPOs of companies with at least $100 million in annual sales and strong growth trends. Bard is watching for Internet and alternative energy companies, and smart grid developers.

One bright spot will likely be the highly anticipated initial offering of electric car maker Tesla Motors Inc., which said late Friday that it intends to raise $100 million in an IPO. Tesla has garnered attention for its high-end Roadster, an all-electric sports car that retails for $109,000. The company has not been profitable.

Many companies that have been attempting offerings, so far this year, have been bogged down by high debt and some have had no operating history.

IPO trackers expect the IPO market to improve in about a month or so.

But for now, executives of many private companies wanting to go public may be wary of pursuing an IPO because they’re concerned about getting a good price in a declining market, said Sam Stovall, Standard & Poor’s chief investment strategist. Meanwhile, investors are “sitting on their hands, just waiting to get a better feel for where the direction is,” he said.

In that environment, companies are reducing the size of offerings, accepting a lower price than they wanted or just pulling their deals altogether.

In recent days, real estate investment trust Terreno Realty Corp. threw in the towel after a reduced share offering still didn’t attract buyers. China-based Daqo New Energy Corp. postponed a pared-down IPO, citing market conditions.

And a health care information technology company which had filed to go public, HealthPort Inc., said it was withdrawing its offering due to unfavorable market conditions, two months after delaying the IPO for the same reason. Another four slashed the size of their offerings. Most priced at the very bottom, or below expectations, to lure buyers.

Only two companies are trading above their offering prices: Warren Buffett-linked insurer Symetra Financial Corp., up 7 percent, and Chinese real estate broker IFM Investments Ltd., which slashed its offering to get to market, is up 2.5 percent.

A $107 million IPO from Imperial Capital LLC, a small investment bank based in Los Angeles, is the only deal with potential in next week’s lineup, said Scott Sweet of IPOBoutique.

The other companies up next week aren’t all that attractive. Workers’ compensation insurer Patriot Risk Management Inc.’s client base may not stay in business, he said. It focuses on small- to mid-sized companies, which have been hard-hit by the recession.

Biotechnology company Ironwood Pharmaceuticals Inc. only has one drug in late-stage development.

And a holdover from this week, Penthouse magazine publisher FriendFinder Networks Inc., is swimming in debt. The company delayed its IPO to answer questions from the Securities and Exchange Commission.

Even in a subdued economic recovery, fast-growing companies will be in demand, Renaissance Capital’s Bard said.

IPO watchers expect social-networking site Facebook, jobs site LinkedIn and solar energy company Solyndra Inc. to go public this year.

Of those, only Solyndra has signaled its intent to go public with the Securities and Exchange Commission.