IPO market is stuck in neutral

Private equity not gone yet

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NEW YORK (CNNMoney.com) -- The IPO market hasn't exactly been running at full throttle this year. And lately, it can't seem to get out of first gear.

There were a flurry of initial public offerings following the high-profile Visa IPO in March. But activity has slowed to a crawl as investors remain on edge.

So far this month, just 6 companies have debuted, according to the Greenwich, Conn.-based IPO research firm Renaissance Capital. Some firms have postponed their plans or nixed going public altogether. The pace is down sharply from the same month a year ago, when 32 companies went public.

"As far as the IPO market is concerned, we are at the bottom of a cycle," said John Fitzgibbon, founder of IPOScoop.com.

It shouldn't be a big surprise that investors have little interest in IPOs. Even though the markets have enjoyed a modest rebound in recent weeks, they are still struggling. So far this year, the tech-fueled Nasdaq composite is down 7.1% while the S&P 500 has fallen 5.3%.

Investor appetite for riskier new offerings is usually greatest when the markets are doing well.

Yet, those firms that have braved the public markets this year have done relatively well as a group. IPOs, on average, delivered a pretty satisfying 9% return, according to Renaissance Capital.

Those numbers, however, include a couple impressive debuts including that of Visa (V) and fertilizer producer Intrepid Potash (IPI). They are up 75% and 46% respectively from their offering prices.

Their performance masks some of the IPO casualties of recent weeks.

Shares of Verso Paper (VRS), which supplies coated paper to catalog and magazine publishers, have slipped 31% from their offering prices. And shares of solar energy company Real Goods Solar (RSOL) have declined 14%. Both firms went public earlier this month.

With investors growing increasingly picky about IPOs, the big banks that manage offerings for companies looking to go public have also grown nervous, said Kathleen Smith, a principal at Renaissance Capital, which also operates IPOHome.com. As more companies flop in their market debuts, that has led to more IPOs being shelved.

"Underwriters won't put their companies up if investors are getting negative returns," said Smith.

That's more bad news for investment banks. Many of them are already struggling because of subprime exposure. A further slump in IPO activity would lead to fewer underwriting fees, a lucrative business for Wall Street firms.

Looking ahead

Right now, just two companies are slated to go public in the next few weeks.

Liberty Lane Acquisition, which was expected to price this week, is a special purpose acquisition company, or SPAC. Those types of companies go public for the sole purpose of buying another company in the future, Liberty Lane plans to offer 35 million shares priced at $10 a share. The company will list on the Nasdaq under the ticker "LLACU."

The other offering on the calendar is Greek shipping firm Safe Bulkers, which is due to launch sometime next week. With the shipping industry performing quite well lately, investors have been eagerly awaiting this IPO. Safe Bulkers plans to offer 10 million shares, priced between $20 and $22 a share, under the ticker "SB."

While the short term outlook appears dreary, companies in some of the market's hottest sectors, such as oil, agriculture and shipping, could keep the IPO market chugging along in the near term, said Sal Morreale, who tracks public offerings for Cantor Fitzgerald.

"You have to have certain market trends to bring a deal out," said Morreale. "Right now the Street doesn't have an appetite for speculative-type deals."

And despite the current climate, plenty of companies are still looking to go public. Roughly 95 companies have filed for IPOs so far this year but haven't gone public yet, according to Renaissance Capital.

Many of those firms have a pretty good track record, notes IPOScoop.com's Fitzgibbon. As a result, we could see the IPO market come roaring back once the markets stabilize.

"Right now it is in limbo, but thank God Wall Street is cyclical," he said.