IPO roadkill

It doesn't get any worse than this: Turbulent markets and worldwide economic upheaval are turning IPOs into roadkill.

Richard Peterson
2 min read
It doesn't get any worse than this. Turbulent markets and worldwide economic upheaval are turning IPOs into roadkill.

After a nearly unprecedented month-long IPO drought, the successful launching of eBay was hopefully viewed as a sign of a turnaround for tech issues. Not so.

Companies remain loathe to belly up to the public trough, as IT IPOs on average lost 15 percent of their market value between October 1 and October 7, and the Nasdaq Composite Index saw a stunning 33 percent collapse in value from its mid-summer highs.

From portals to chipmakers to e-commerce firms, the market is showing no mercy. And more fallout is littering Wall Street.

For starters, it doesn't look pretty for Silicon Valley as prospects of massive job cuts loom--with some estimating that as many as one-third of the region's 166,000-plus jobs are on the line. With fewer folks working and spending gobs of money, recession may even be on the horizon. An increasing number of business forecasters and soothsayers are expecting as much in the next 12 months.

Also, the talk on the street is that investment banks may cut the flow of capital to tech firms. Combine that with fewer IPOs, declining private placements, and a slowing of venture capital to firms, and the prospect of IT companies' accessing capital will likely be a frustrating catch-22.

Only those firms that have and will continue to generate expanding profit margins in the quarters ahead will be able to snare funds from increasingly tight-fisted banks.

Unless you're willing to surrender a majority stake in ownership, trade away rights to future revenues from any project launch, or perhaps be willing to grovel, plead, and beg on a daily basis, then you're probably better off in getting funding by means of scratching some rub-off lottery ticket or hoping to pick the winning numbers at next week's drawing of Powerball.

Where does this end?

For doom and gloomers, this is the moment in the spotlight. Yet, just as the financial markets overcame the oil shock of the 1970s, concerns about Mexican debt in the early 1980s, and fear over the widening federal budget deficit in the past decade, so too will this crisis pass.

Today's pain is tomorrow's memory from which we learn to build again.

Richard Peterson is an IPO analyst for Securities Data. He specializes in analyzing IPOs, mergers, acquisitions, and the financing of companies.