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Equity capital markets: Price not right as IPOs are sidelined

Underwriters “too aggressive” in their pricing; Investors wary of debt-laden companies

Predictions for a booming IPO market in the first quarter of 2010 look overwhelmingly optimistic. Although the number of deals filed is the highest for two years, only 12 US firms had undertaken IPOs up to February 19, and only 134 firms globally.

"There was a tremendous amount of optimism that began to build last summer which resulted in an uptick in the number of filings," says Mary Ann Deignan, Americas head of equity capital markets at UBS. The pipeline now has some 100 companies totalling around $15 billion in estimated raises. "They’re all dressed up with no place to go," says Deignan.

With macroeconomic uncertainties persisting, investors are just not as willing to take as much risk as underwriters and issuers had believed they would. "Positive news is followed by negative news," says Dan Cummings, head of Americas ECM at Bank of America Merrill Lynch. "There are still issues raging about unemployment, healthcare reform, sovereign ratings. The broader markets have recently struggled, and the IPO market has followed their lead." With equity markets down since December, investors are not making enough money on the current stocks in their portfolios to warrant taking a chance on a new name with no history unless the price is right.

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