Initial public offerings, on the rebound following a monthlong U.S. drought, will face “ebbs and flows” this year amid further economic turbulence in Europe and the U.S., according to Morgan Stanley.
The bank is the top adviser on IPOs in 2012 after leading Facebook (FB) Inc.’s record $16 billion sale. Investors may be daunted by uncertainty over planned U.S. tax increases and the European debt crisis, even after a lull in stock volatility revived the market this month, said Colin Stewart, Morgan Stanley vice chairman of global capital markets.
“While the markets have settled down, people are waiting for the next thing to happen,” Stewart, based in Menlo Park, California, said in an interview. “I don’t know if the pace necessarily accelerates materially from here -- the macro environment is a governor on that.”
Stewart helped cement Morgan Stanley’s lead in IPOs last week with sales for technology companies Palo Alto (PANW) Networks Inc. and Kayak Software Corp., both of which surged in their public debuts. The successes mark a reversal for the bank, which drew criticism for its handling of the record IPO for Facebook, whose stock sank as much as 32 percent after its debut.
This week is poised to be the busiest for initial share sales since March, with eight companies set to raise as much as $923 million, data compiled by Bloomberg show. Companies such as Palo Alto and Five Below Inc. (FIVE) gained in their public trading debuts last week as volatility fell to the lowest in almost four months.
Global turmoil may temper the revival. The euro fell to its lowest in more than two years last week, even as euro-area finance ministers gave final approval to a rescue package for Spain in an effort to tame the region’s debt crisis, now in its third year. Meanwhile, U.S. legislators are debating how to avoid $607 billion of automatic spending cuts and tax increases scheduled to take effect next year as high unemployment persists.
A 39 percent decline through last week from a June 1 high in the Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), “is certainly helpful” in spurring investors’ appetite for risk, Stewart, 45, said in a telephone interview. The VIX has surged as much as 26 percent today to 20.49.
His bank led IPOs by Internet-firewall provider Palo Alto, travel-site operator Kayak and software-maker ServiceNow Inc. following the freeze after Facebook’s offering. Stewart, who has worked at the bank for more than 20 years and helped take Google Inc. public, declined to comment on the Facebook IPO.
Facebook wasn’t the only Internet IPO to lose money for investors. Online coupon provider Groupon Inc. (GRPN), music service Pandora Media Inc. and social-gaming company Zynga Inc. have languished as public companies. As of July 20, Groupon had dropped 63 percent since its November IPO, Pandora had sunk 34 percent and Zynga had posted a 52 percent drop since its December offering.
“Market environments have changed, and how people value these businesses has changed,” Stewart said. “Consumer Internet has been a challenging space for investors.”
Morgan Stanley is edging out JPMorgan Chase & Co. for the lead in U.S. IPOs, with each claiming about 12 percent of the market. There have been more than $28 billion in U.S. IPOs in 2012, the largest being Facebook’s, the biggest in history for an Internet or technology company. On those types of sales, Morgan Stanley (MS) is on track to lead this year.
Palo Alto, Kayak
Palo Alto raised $260.4 million in its July 19 IPO, pricing the stock above an increased range, and gained 27 percent in its first day of trading July 20. Norwalk, Connecticut-based Kayak raised $91 million and rose 28 percent in its debut.
“Although Morgan Stanley is not off the hook completely because of the Facebook debacle, they did prove that they can do a deal and make it work,” said Scott Sweet, senior managing partner at research firm IPO Boutique in Lutz, Florida. “Since Facebook has come out, there have been no disasters.”
Morgan Stanley is the sixth-biggest U.S. bank by assets. The lender generated $283 million in revenue from equity underwriting last quarter, a 32 percent drop from a year earlier. The bank reported $6.95 billion in total revenue for the quarter.
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