NEW YORK (CNNfn) - Only one company will attempt to float an initial public offering this week, but all eyes are on the new issue from the world's largest consulting firm, Accenture Ltd., which is waiting in the wings.|
Hopes are not high for third quarter's new issues as a spate of earnings warnings have cast a pall on the IPO market, analysts said. Data storage maker EMC (EMC: down $8.43 to $21.60, Research, Estimates), chipmaker Advanced Micro Devices (AMD: down $7.84 to $20.80, Research, Estimates), and BMC Software (BMC: down $2.07 to $20.68, Research, Estimates) all said last Thursday that slowing in technology spending would hurt profits.
The warnings spooked the broad market. The Nasdaq Composite, a barometer for new issues, fell Friday by 75.95 points, or 3.7 percent, to 2,004.16, for its fourth straight loss and its worst finish since April 17, when the index closed at 1,923.22. The Dow Jones industrial average dropped 227.18, or 2.2 percent, to 10,252.68.
For the week, the Nasdaq fell 7.2 percent, widening its annual loss to 18.8 percent. The Dow shed 2.4 percent on the week, pushing its 2001 decline to 5 percent.
Given such negative market sentiment, analysts believe new issues will have a tough time getting out of the gate.
"The market is going to be terrible," said analyst Steve Tuen, of IPO Value Monitor. "The last couple days – with all the earnings warnings coming – investor sentiment has been shot combined with the summer season."
IPOs took a break last week, with no issues opening for trade, due to the July 4 holiday and only one IPO is on tap this week. Wright Medical Group Inc., an orthopedic device company, makes reconstructive implants for joints such as the knee and hip.
David Menlow, president of IPOfinancial.com, expects the deal to open with a small premium of about 5 percent. "Surgical appliance/supplies is a potentially good sector but not a trendsetter for the rest of the IPO market," he said.
The 51-year-old Wright Medical is also one of the first companies to receive clearance from the Food and Drug Administration for its synthetic bone graft substitute that is used in the spine.
The company competes against: DePuy Inc., a unit of Johnson & Johnson (JNJ: down $0.50 to $50.41, Research, Estimates); Zimmer Inc., a subsidiary of Bristol-Myers Squibb (BMY: down $0.09 to $53.10, Research, Estimates); Stryker Corp. (SYK: down $0.47 to $54.09, Research, Estimates); and Smith & Nephew Inc (SNN: up $0.38 to $51.05, Research, Estimates).
Arlington, Tenn.-based Wright had $45.3 million in sales and net income of $185,000 for the quarter ended March 31. After the IPO, Warburg Pincus Equity Partners LP will own a 60.5 percent stake, while the California Public Employees Retirement System (CALPERS) will hold 5 percent.
The orthopedic device company plans to sell 7.5 million shares at $11.50 to $13.50 each via lead underwriter J.P. Morgan.
Wright is expected to price Thursday and trade Friday under the Nasdaq symbol "WMGI."
A consulting IPO next week
The long-awaited Accenture offering will finally get under way the week of July 16, underwriters on the deal said. The offering, which could raise as much as $1.73 billion, has been on tap since April.
Accenture, with headquarters in both Bermuda and Palo Alto, Calif., provides management and technology consulting to customers such as Allianz AG (AZ: down $0.22 to $28.49, Research, Estimates), J.P. Morgan Chase & Co. (JPM: down $1.02 to $44.51, Research, Estimates), Ford Motor Co. (F: down $0.75 to $24.28, Research, Estimates), and Johnson & Johnson.
After the IPO, Accenture partners will hold 82 percent of the company's voting power. The consulting firm has long been profitable and posted $1.4 billion in operating income on $6.6 billion in revenue for the six months ended Feb. 28, compared with $964 million in operating income on $5.5 billion in revenue for the same period the year before.
The firm, formerly known as Andersen Consulting, won its freedom from parent firm Andersen Worldwide last August. The firm had been involved in a bitter dispute over being forced to share its profit with sister firm Arthur Andersen, the global accounting firm. Andersen Consulting changed its name to Accenture on Jan. 1 as a result of that split.
The Accenture offering will follow the IPO from rival KPMG Consulting Inc. In February, the KPMG (KCIN: up $0.13 to $14.39, Research, Estimates) issue surged 30 percent in its first day of trade, but then dropped below its $18 offer price and has yet to rebound.
Because of its lineage, Accenture may not be as vulnerable to the rough broad market, said Tuen of IPO Value Monitor. "They may be able to complete the offering at the very least," he said. "Depending on how they price the deal, Accenture may be a decent performer."
Accenture plans to sell 115 million shares at $13-to-$15 each via lead underwriters Goldman Sachs and Morgan Stanley. The company plans to price July 19 and trade July 20 under the New York Stock Exchange symbol "ACN."