IPO View-U.S. IPO market suffering from weak cos

* U.S. IPO market suffering from poor quality companies

* IPO returns should significantly beat indexes-analyst

* Next week’s IPOs have mixed prospects-analyst

By Clare Baldwin

NEW YORK, May 14 (BestGrowthStock) – While a rocky stock market is
one reason for the U.S. IPO market’s recent struggles, equity
underwriters and the quality of the companies they bring to
market bear much of the responsibility.

Overly ambitious valuations as well as a surfeit of private
equity-backed offerings into which the owners have been trying
to sell have been scaring away many investors, analysts say.

As a result, a growing number of deals are being canceled,
delayed or re-priced.

Canadian communications company Mitel Networks Corp
(MITL.O: ), for example, filed to price at a premium to
competitors Alcatel-Lucent SA (ALUA.PA: ) and Cisco Systems Inc
(CSCO.O: ). The IPO priced 26.3 percent below the expected range
and lost an additional 12.1 percent on its debut. Shares are
now trading 17.8 percent below their IPO price.

Chinese oil company MIE Holding Corp (MIE.N: ) sought a
valuation ahead of some competitors. Shareholders including
private equity affiliate TPG Star Energy Ltd — which had held
its stake for less than a year — were planning to sell some of
their shares.

The company delayed the offering, slashed its value by 60
percent and said no current shareholders would sell in the IPO.
After U.S. markets took a sudden plunge last Thursday, the
company canceled its IPO.

Shares in metals service center Metals USA Holdings Corp
(MUSA.N: ) in which private equity firm Apollo Management LP
[APOLO.UL] sold a portion of its stake are now trading 25
percent below their issue price.

“The point is that investors are looking for positive
returns and it’s not enough to beat the market with IPOs.
Investors really want to make money on them,” said Nick
Einhorn, an analyst with Connecticut-based Renaissance

“What we saw in 2008 was that when markets were falling
even though IPOs weren’t doing that badly relative to the
markets they still weren’t trading up — and that was enough
for the market to basically shut down,” Einhorn said.

To date, IPOs have posted average returns of about 2.4
percent, according to Thomson Reuters data. The Russell 3000,
one of the broadest measures of publicly traded companies in
the United States, is up about 3.03 percent, year-to-date.

In one example of the market’s problems, and some
solutions, Noranda Aluminum Holding Corp (NOR.N: ), backed by
Apollo, was the best performing debut in recent weeks. Its
shares surged 10 percent by the end of the day, but the company
had to make major concessions to eke out the gains.

Noranda, which smelts and refines aluminum and mines
bauxite, sold 10 million shares for $8 each on Thursday,
raising about $80 million. But that was nearly 70 percent less
than it was originally planning on.

The IPO price was also slashed from an initial range of $14
to $16 each. Apollo, which originally planned to sell 2.5
million shares in the offering, decided not to sell any shares
in the IPO.

Apollo declined to comment.


“The overall IPO market has been very lackluster,” said
Darren Fabric, a managing director at IPOX Capital Management.
“You’re not getting compensated to take risks.”

There are other signs all is not well in the U.S. IPO
market. Only three are on the calendar for next week —
compared with seven that were scheduled for this week — and
Morningstar analyst Michael Gaiden said none presents a
completely compelling picture.

Accretive Health Inc (AH.N: ), which provides revenue
management services to healthcare companies, hopes to raise
about $200 million. The company posted net services revenue of
$125.94 million in the three months ended March 31, up 12
percent from a year earlier. It swung to a $314,000 profit from
a $638,000 loss. But a single customer, Catholic nonprofit
healthcare company Ascension Health, accounted for about 60
percent of its net revenue.

Nearly all of the major shareholders are selling a portion
of their shares, a move analysts say could create investor

Radiation detection and monitoring company Mirion
Technologies Inc (MION.O: ) hopes to raise about $176 million.
But nearly all of the proceeds from the offering are going to
private equity owner American Capital Ltd (ACAS.O: ), which also
plans to sell part of its stake.

The third firm going public, Internet marketing company
ReachLocal Inc (RLOC.O: ), hopes to raise about $75 million. The
company is in a high-growth industry — online advertising by
small and medium businesses — but most of its business depends
on Google Inc (Read more about Google Stock Analysis) (GOOG.O: ). When Google ended a rebate program at
the end of 2008 ReachLocal saw an uptick in its expenses.

Stock Investing

(Reporting by Clare Baldwin, additional reporting by Rodrigo
Campos; Editing by Gary Hill)

IPO View-U.S. IPO market suffering from weak cos