Trying to go public in this market is akin to setting sail in a hurricane: You don't
really want to venture out, but then again the storm may just blow over.

Private equity-backed initial public offerings helped drive global activity in the first half of the year, but the severe market gyrations are forcing new issuers into a hiatus, at least until after Labor Day, according to industry professionals.

"Given the dramatic upswing in volatility, [sponsor-backed IPOs] are going to proceed more cautiously when they move into the marketplace and launch a deal," said Frank Maturo, Bank of America Merrill Lynch's co-head of equity capital markets for the Americas.

In the first half of 2011, private equity-backed companies raised $31 billion via 69 offerings, or 28% of the total dollar volume, according to Ernst & Young's global IPO update.

Up until two weeks ago, these IPOs by and large were performing well. North American IPOs in the second quarter had an average gain of 12%, driven mostly by the U.S., which hosted six out of the top 10 global performers, according to Renaissance Capital LLC.

The more optimistic projections had the second half even outpacing the first half. All that changed, however, with the escalating euro-zone debt crisis, political wrangling over the debt ceiling and the markets' reactions this week to Standard & Poor's unprecedented downgrade of U.S. credit.

As of Wednesday, six of the 12 IPOs planned for this week had announced postponements.

This doesn't bode well for PE shareholders of companies that did make it out of the gate in recent months. Of at least 20 private equity-backed companies that went public this year, only six were up from their IPO dates through Aug. 9, according to The Daily Deal's calculations, using data from Preqin Ltd. On average, each stock is down 16% as of the close of trade Tuesday, even though U.S. markets rebounded strongly that day in a short-lived reprieve that has been followed by steep declines Wednesday.

Certain companies owned by PE firms that have yet to recoup their investments appear to be down the most. Shares of Demand Media Inc., for example, have dropped 59% since the company's Jan. 25 IPO, while Freescale Semiconductor Holdings I Inc. is down 33% since its May 25 debut. At the time, its sponsors' combined investment was already half of what it was worth.

For those still in the IPO queue, the PE owners looking to cash out at least partially will just have to bide their time. The offerings of Houston-based PetroLogistics LP, Chicago credit reporting company Trans-
Union Corp., Styron LLC (filing under new name Trinseo SA) and MacDermid Inc., along with Oak Hill Capital Partners LP-controlled Dave & Buster's Holdings Inc., whose proposed float would have helped pare debt, are in limbo for now.

As a result, sponsors may be reassessing IPO valuations, capital markets advisers said. Public comparables are down considerably in most cases. Moreover, because of volatility, there will be an additional discount for newly listed companies compared with peers, referred to as the IPO discount. So at least the month of August, traditionally slow, may stay quiet on most fronts, observers said.

On the other hand, bankers point to expectations that the IPO markets will recover going into the fourth quarter, with some qualifications.

"We don't think anybody is in a dramatic hurry," Maturo said. "They just want to know they're going to get the right valuation when they move forward."

The lag time between an IPO registration and the actual listing, at times viewed negatively in the past, will likely be the norm. Hospital operator HCA Inc. had a lag time of more than a year after its S-1 filing. Toys 'R' Us Inc. has twice delayed an IPO, which is now expected later this year.

Depending on the climate, the size of the offering may also be tweaked, bankers said, as well as the amount the financial sponsors may want to sell into an IPO, versus opportunistic secondary share sales.

Peter Kies, Robert W. Baird & Co.'s co-head of equity capital markets, said the market "has been very receptive to secondary shares after a quarter or so of performance."

Overall, he added, "I have not felt a wholesale change of psyche. If the debt markets are there and the IPO markets aren't, we'll be back to where we were in 2007, but I don't think we'll go back to that."

Prolonged volatility could mean companies on a dual-track process -- where they pursue an IPO and a potential sale simultaneously -- may be more inclined toward a private sale, which offers a more immediate exit.

Strategic buyers are sitting on cash hoards and the debt markets remain open for business, as evidenced by financings proceeding despite the market tumult.

Not to say that this isn't happening already. Last month GTCR Golder Rauner LLC and Bank of New York Mellon Corp. opted to sell financial trading management company BNY ConvergEx Group to London's CVC Capital Partners Ltd. And earlier this month, GI Partners chose to sell data center operator Telx Corp. to Abry Partners and Berkshire Partners LLC.

For the time being, however, corporate America is spending its cash on share repurchases, with a 134% rise in share repurchases last week compared to weekly activity in July, according to BofA.

Wendy Hambleton, director at consulting firm BDO USA LLP, said that companies with good fundamentals will still have a market, the question being at what price.

In a June survey of investment bankers by BDO, a majority predicted IPO activity would increase in the second half of the year.

While that might not be the case today, Hambleton said, the sectors where investment bankers had projected the most growth -- technology and energy -- are still in demand in the IPO markets, while consumer and retail businesses, which the survey had already pegged as having fewer IPO prospects, will have an even harder time in the wake of the budget crisis and depressed consumer confidence.