NEW YORK (Reuters) - The U.S. initial public offerings market may have started 2005 strongly, but has since waned as the stock market grew more vulnerable and mergers increased.
Only a few deals are expected in March and experts said it could be another month before the backlog of initial public offerings that have already been filed start to hit the market. The reasons vary from instability in stock markets, to high oil prices, to more merger and acquisitions taking the place of IPOs, they say.
"There are a lot of deals filed and ready to go. There were so many deals that came out at the end of the year, everybody was trying to get the pipeline filled up," said Sal Morreale, an institutional salesman for Cantor Fitzgerald who tracks IPOs. "Hopefully, in the middle of April we'll start seeing some deals, but right now it's been very quiet," he said.
Still, compared with a year ago, the IPO market has picked up slightly, even though the aftermarket performance has been lackluster. There have been 44 IPOs so far this year worth a total $10.6 billion, or about $241 million each on average. The average percentage change in the stocks to date is 4.6 percent, according to market research firm Dealogic.
That compares with 36 deals for a total of $8.6 billion in the same period of 2004, or an average of $239 million per deal. On average though, the stocks performed better after those offerings, gaining 11.7 percent in their first month.
The deals that have hit the market this year have been a mixed bag. The IPO of debt-laden PanAmsat Holding Corp. (PA) on Thursday fell flat, with shares losing 3 percent in their first day of trading. But earlier this month, the shares of International Securities Exchange Inc. (ISE) came flying out of the gate, gaining 57 percent in its first day.
One seasonal reason for the slowdown this month could be the close of the first financial quarter, said Tom Taulli, who runs an IPO research Web site called Current Offerings. As companies are busy working on financial results and internal audits to comply with disclosure regulations, they are putting off actually starting their IPOs, he said.
In addition, oil prices at more than $50 have some investors on edge as they wonder how long the historical highs can last, he said. And instability in the Nasdaq stock market and sharp drops in blue-chip stocks like General Motors Corp. (GM), which sank to their lowest level in more than a decade after the car maker cut its profit outlook, also weigh down enthusiasm. Another factor is the recent rally in the mergers and acquisitions market, as companies that planned to go public turn instead to deals, Taulli said. For instance, Sybari Software Inc. was about a week away from going to market when Microsoft Corp. (MSFT) stepped in and bought the anti-virus software company last month. "The M&A market is invading the IPO market," Taulli said.
GM's U.S. Sales Expected to Drop by Up to 10 Pct Fri Mar 18, 2005 03:45 PM ET
By Michael Ellis DETROIT (Reuters) - General Motors Corp. (GM.N: Quote, Profile, Research) , which warned earlier this week it expects sharply lower profit this year, will see little relief from its March U.S. vehicle sales, which are expected to fall by as much as 10 percent, analysts said on Friday.
Despite new sales incentives, the world's largest automaker will again lose U.S. market share to foreign automakers, leaving it with an excess of unsold vehicles even after it has already made painful cuts to car and truck production this year, analysts said.
GM Chief Executive Officer Rick Wagoner, speaking to analysts and reporters earlier this week, said of March sales; "It looks like March is going to be better than the first two months."
GM's U.S. sales fell more than 6 percent in January and February for a U.S. market share of about 25 percent, far below its share of 27.3 percent in March last year.
"We think GM will be down about 10 percent this month," said Jesse Toprak, a senior analyst with Edmunds.com, which tracks industry sales and incentives.
Conversely, Asian carmakers Toyota Motor Corp. (7203.T: Quote, Profile, Research) , Nissan Motor Co. Ltd. (7201.T: Quote, Profile, Research) and Hyundai Motor Co. Ltd. (005380.KS: Quote, Profile, Research) will see double-digit sales gains, Toprak said.Wagoner said that GM's sales incentive strategy of zero percent financing and high cash rebates, launched following the Sept. 11 attacks, has been paying fewer dividends in recent months. He and GM Chief Financial Officer John Devine outlined GM's new sales strategy of pricing vehicles closer to the transaction price, to cut back on incentives.
EXCESS INVENTORIES
"Their current strategy has failed. To me, it's an abrupt about-face," one Wall Street analyst said of GM's new strategy. Another big decline in sales would come despite GM's new "March Madness" sales incentives, which include additional cash rebates of up to $1,500 on the sale of GM vehicles that have gone unsold for 125 days or more. GM has also cut prices on its mid-size sport utility vehicles, but Toprak said that GM failed to effectively advertise the new prices.
Deutsche Bank said in a report this week that GM dealers are reporting an 11 percent drop in March sales so far, and the automaker could lose a full 2 percentage points of market share. "Our channel checks indicate that GM's retail sales are down double digits again," Lehman Brothers wrote in a report this week. "We are expecting them to end the month down 3 to 4 percent." That would leave GM with excess car and truck inventories of 200,000 to 300,000 vehicles in North America, Lehman Brothers said. Inventories of GM's full-size pickup trucks and SUVs, key to GM's earnings, will grow to a more than a 100-day supply, Lehman said. GM's share of the full-size SUV segment dropped to about 38 percent in February from 65 percent in September 2002, Toprak said.
For the first six months of this year, GM has forecast a cut in its North American vehicle production by 304,000 cars and trucks, down 11 percent from year-earlier levels. Any cut in production deals a direct blow to earnings, because the automaker counts profit from vehicles when they are shipped to dealers, rather than when they are sold from showroom floors.
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