IPOs Point To Improvement
So far this year the IPO market has been in a stalemate as companies fear they won’t be able to attract enough attention from investors to warrant an IPO. Most new issues on the stock exchanges have been exchange-traded funds of different varieties but two recent IPO successes point to a healthy capital market and the ability to raise money, even in a recession.
Hyatt Hotels and Ancestry.com
Hyatt Hotels and Ancestry.com both IPO’ed on November 5th, 2009 with both selling all of their shares and still managing to climb 12% and 5.2% respectively in the first day of trading. Ancestry.com Inc. (ACOM) launched with a share price of $13.50 per share and seeking to raise $100 million to expand is online business of helping people find families and family information.
Hyatt Hotels IPO’ed at a price of $25 per share with 38 million shares to sell, all of the shares were sold and analysts were quick to note that Hyatt may have been one of the best IPO bargains of the year. The company, which owns hotel chains across the United States, sold at a price analysts thought was under its bookvalue. Hyatt closed at $28 per share.
Pulling out the Powder
Investors have been “keeping their powder dry” by investing in debt instruments and fixed income as a means to protect their money from risk. But the success of these two IPOs does suggest that the markets may be willing to accept risk, but only at the right price. Certainly, Hyatts business is well off its pre-recession highs and Ancestry.com isn’t exactly a “must-have” product. However, investors were willing to invest in two fledging businesses, even if it did require some risk acceptance.
Healthy IPOs Indicate a Healthy Market
Though both issues were already established in their market, investors should welcome new issues that aren’t ETFs. Its certain that exchange-traded funds will find it easy to raise capital, as they are funds of stocks already trading on the NYSE, the ability of individual businesses to raise capital gives hope that the stock market may be turning around—even if the economy isn’t.
The IPO market is now running out of steam as the US long overdue stock market correction starts to kick in. Watch for close below 1030 on S&P 500 this could spell trouble and could indicate the start of a large 10%+ correction.
There’s always a market for a smart IPO, even in these times.