We were trying to wait until the stock market showed some signs of stability before discussing the following report...alas. Anyway, Renaissance Capital LLC earlier this week came out with a detailed study seeking to answer the question: When will the IPO market return? The quick answer: The IPO market will stage "at least a modest comeback in January, 2009." Worst-case scenario (which it seems prudent to discuss) is that IPO activity will not return until March of 2009, "and then sputter on for several months."
While a strong stock market is typically necessary to encourage companies to go public, Renaissance argues that's not always the case. When there is a period of heightened IPO activity, as there was from 1995 to 1999, followed by a decline in the broad stock market, subsequent IPO issuance is sluggish. However, when there is a period of lower-than-normal IPO issuance as was the case in the 1970s (the most recent period of prolonged IPO inactivity) and the last seven years, "a bounceback can occur without a strong overall stock market simply because there is pent-up demand for capital by private companies." This is the scenario Renaissance expects will play out.
The good news for investors, if Renaissance is right, is that the most powerful returns will be seen when the market does come back because the quality of companies attempting to go public will be high and pricing will be favorable because the IPOs will need to be priced relatively low to attract investors. -- David Shabelman
See IPO report from Renaissance Capital
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