US offerings slump below list prices

Companies that listed in the US this year are struggling to maintain share prices above their flotation price, with the typical company losing about 10 per cent of its value after its debut.

The average US initial public offering has fallen by 9.9 per cent in its first six months of trading, according to Dealogic, a capital markets data provider. By contrast, the Russell 3000 Growth index, which tracks smaller companies, is up 1.1 per cent this year.

The fall in IPO share prices is second only to the decline in 2008, when the average company fell 15 per cent, according to data going back to 1995.

This is seen as an indication that investors are worried about even potential high-growth companies amid a struggling economy, though some groups, such as Zynga, the social networks games-maker, and Jive Software, which makes business-focused social networking software, still plan to sell shares next month.

In recent weeks, several web company offerings such as Groupon, the online coupon-seller, have fallen below their initial price on fears that future increases in share supply will hurt prices. Groupon’s shares are down 5 per cent since its IPO at $20 in November, at $18.95 as of the close of trading in New York on Thursday.

Shares in Pandora Media, the music streaming site, and Angie’s List, the online services reviews site, are also below their IPO prices.

“A lot of long-term investment money has shifted to short-term funds, and you’re seeing that with IPOs especially,” said Mona DeFrawi, chief executive of Equidity, a capital markets consultancy. “Many of their initial allocations went to hedge funds and other investors looking to ‘flip’ the shares.”

Out of the 119 deals tracked by Dealogic this year, only 41 were above their IPO prices after six months, or to date for offerings that have not yet reached six months.

The sharpest declines are among China-based companies that listed depositary receipts on US markets. That includes Renren, a large social network that is often compared with Facebook, whose shares fell 59 per cent after six months, and Tudou, a streaming video website, which has also fallen 59 per cent since its August IPO.

Fears about Chinese groups’ accounting and financial reporting arose earlier this year after investigations by the US Securities and Exchange Commission and US accounting authorities found concerns with several companies.

A number of web groups have seen sharp declines, yet still stayed above their IPO prices. Shares in LinkedIn, the social network focused on professionals, were 60 per cent higher after six months and are still well above their $45 initial price, at $67.78 as of the close of traing on Thursday in New York.

Scott Sweet, senior managing partner at IPO Boutique, attributed outperformance in part to having substantial analyst coverage.

“People are not gravitating toward smaller IPOs because there are many well-known companies that have analyst support. These are also relatively cheaper,” he said.