The faltering stock market prompted 19 companies to postpone initial public offerings and 14 more to withdraw altogether in April, illustrating why investors remain worried about the sustainability of revenue for big brokerages that take companies public.
The 33 postponed and canceled deals would have raised about $8.3 billion for the companies, generating $581 million of investment banking fees, based on an average fee of 7%. Among the bigger deals, AltaVista postponed - for a second time - its $1.1 billion offering, led by Morgan Stanley Dean Witter, and Crown Media Holdings postponed its $1 billion deal led by Donaldson, Lufkin & Jenrette.
"It's time to pack up and go to Hawaii," said Jeff Hirschkorn, senior market analyst with IPO.com of New York, which notes there were no postponements and 17 withdrawals in the first quarter . "There's nothing but garbage on the calendar."
Mr. Hirschkorn said four of the seven companies on this week's offering calendar are holdovers from last week. He said next week's calendar holds only one offering. "A wrecking ball hit the IPO market," he said.
In addition to drying up a source of capital for fledgling private companies, the slump in IPOs is hurting market values of brokerage firms such as Morgan Stanley, Lehman Brothers, DLJ, and Credit Suisse First Boston, all of which gorged on a record $100.7 billion in IPO proceeds in 1999.
"Brokerages' share prices are being driven by record levels of commission and underwriting business," said Michael A. Flanagan, an analyst with Financial Service Analytics in Philadelphia. "So a fallout in any of those businesses will impact share prices, and that's what were seeing now in the softening IPO market." He said the underwriting wave has abated, which will result in lower IPO revenues on a quarter-to-quarter basis. "The second quarter will see some softness," he said.
"It will affect the bottom line, but it's not all they do," said James P. Hanbury, an analyst with Schroder Securities. He added, however, "It's not a good deal - not a good deal for anybody."
Lehman Brothers' stock has fallen from a three-month high of $105.438, to $75.625 on April 14, and closed Friday at $82.0625. Morgan Stanley, whose stock has ranged from $66.875 to $95.813 in the past three months, closed at $76.75 Friday. And DLJ, after reaching three-month high of $67.313 on March 24, fell to $38.875 on April 14; DLJ closed at $41.6875 Friday.
An official at one major investment bank said the firm has advised clients that the market is too volatile to go forward with offerings.
"We have been selectively releasing some deals, but we've been advising that it's not the best time," the official said, noting that Credit Suisse two weeks ago advised clients to wait four to eight weeks to see some stabilization. "We feel it's the responsible thing to do, to go forward would be foolish," the official said.
Phillip Dunkelberger, president and chief executive officer of Embark.com, which withdrew its form S-1 registration statement with the Securities and Exchange Commission last week, cited "market conditions" as the main impetus behind the decision.
Mr. Dunkelberger said his company has performed well and insisted the company would not be hurt by the change in plans: "We have the flexibility to step away from the turbulence of the public market and will continue to focus on the execution of our business plan."
Brad Sinrod, president of IPO.com, said investors have become more concerned with quality, meaning that companies that could have gone public in a more bullish climate would have more trouble in today's weaker market.
Mr. Flanagan said the brokerage firms are likely to get the postponed IPO revenue eventually.
"The important thing to keep in mind is that these deals are simply being deferred, and they will come out," he said.