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Ben Bernanke Has Muted the IPO Market

A suddenly uncertain market has turned dark for deals


For most of 2013, the story on the initial public offering front has been just how darn good things have been. Deals have been resurgent, with a couple billion-dollar-plus offerings hitting the markets, and May … man, May was as good a month for IPOs as we’ve seen in years.

What goes up apparently must come down, though, and anchoring this balloon is none other than Federal Reserve Chairman Ben Bernanke.

The general rule of thumb for IPOs is this: Deals are highly sensitive to market volatility. This primarily is because they’re often high-risk assets — that is, companies in the early stages of their life cycle. Thus, when investors get skittish, the crowd around the IPO pool can get awfully sparse, awfully quick.

And signs of deterioration are everywhere.

As I noted in a recent post for the IPOPlaybook, three companies delayed their deals last week. IPO delays aren’t unheard of, but for most of this year, we were looking at one delay every couple of weeks or so.

Really coming under pressure have been companies tied to interest rates, especially real estate investment trusts, or REITs. Just take a look at this chart:

Company Ticker Deal Date Return
Aviv REIT AVIV 3/20/13 +25%
CyrusOne CONE 1/17/13 +2%
Armada Hoffler AHH 5/7/13 -2%
Hannon Armstrong Sustainable
Infrastructure Capital
HASI 4/17/13 -6%
ZAIS Financial ZFC 2/7/13 -14%
Ellington Residential EARN 5/1/13 -16%
American Residential ARPI 5/8/13 -16%
Orchid Island Capital ORC 2/13/13 -21%

And at least so far, we haven’t seen a REIT deal go live since Bernanke hinted at Fed tapering.

Other recent deals have shown weakness that frankly seems counterintuitive. Specifically, Coty (COTY) and Gogo (GOGO) both looked like potentially popular offerings, but have been weak in the early offing. It’s not a stretch to think that even a month ago, their fates might have been much different.

It’s a good bet that the IPO market will be fairly muted for the rest of summer, especially considering there’s usually not much activity in August and September, anyway. Expect a return to more lively activity in the fall.

The good news is that should leave enough time for the markets to get adjusted to higher interest rates.


Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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