Facebook’s Debacle Cools Companies from IPOs

The number of initial public offerings (IPOs) worldwide has fallen to its lowest levels in the past five years this year.

A combination of global economic uncertainty and the massive debacle of Facebook’s IPO has driven a significant number of companies away from the primary capital market, Bloomberg reports. This year, a total of $112 billion has been raised globally through IPOs. Initial stock sales in Western Europe have dropped by a third compared to 2011, while IPOs in Asia have been halved, primarily due to concerns about the state of the Chinese economy. The situation in the primary equity market in the U.S. has remained almost unchanged from last year, with around $41 billion of fresh capital raised through IPOs.

The possibility of $600 billion in budget cuts and higher taxes in the U.S., which could together cause a new recession, will not positively impact capital markets in the coming year. Analysts at Credit Suisse see only a slim chance of changing the negative trend if Americans agree on budget cuts and avoid the infamous fiscal cliff. IPOs in the U.S. this year did not decline precisely because of the $16 billion initial offering of Facebook, which was also the largest IPO of any technology company in history. However, shortly after the shares were listed on the market, their value fell by 32%, causing many companies to postpone planned public offerings and turn to private investors.

– “Many companies globally have concluded that their business results do not reflect the true value of the company. As a result, numerous IPOs have been postponed because company leaders have determined that it is better to first improve business results to ensure a better stock valuation,” said an economist from Swiss UBS to Bloomberg.

As for public stock offerings in Europe, the fourth quarter of this year was the most vibrant despite the new recession that the eurozone region has entered. However, the volume of capital raised is not even half of the amount raised before the crisis, i.e., in 2007. The most active sector was telecommunications – the German subsidiary of Telefonica raised €1.45 billion in August, while the Russian telecom operator MegaFon gathered €1.8 billion in fresh capital.

Large IPOs of telecommunications companies are expected next year. Specifically, Telefonica needs another €6 billion for its operations in Central America, while Deutsche Telekom is considering selling its stake in France Telecom. Additionally, the British state postal service Royal Mail is also on the privatization list.