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IPO Stall Pushes M&A Dealmaking


NEW YORK ( TheStreet) -- The market for initial public offerings (IPO) has a 'closed' sign hanging over it and private equity investors will use mergers, private equity buyouts, spinoffs and a lot of waiting as a replacement for selling public shares.

Bankers are keeping their powder dry as they wait for the market to stabilize as it has been battered by large swings from the European debt crisis. "A lot of bankers would tell you that because of the froth of the summer, there are a lot of IPO's sitting in the pipeline," said James Woolery, co-head of J.P. Morgan's (JPM) North American mergers and acquisitions division at the Dow Jones Private Equity Analyst Conference in the Waldorf Astoria Hotel on Wednesday.

Jeff Bunzel head of equity capital markets at Credit Suisse (CS) agreed adding, "There hasn't been an I.P.O. in one and a half months... we will need two-to-three weeks of market stability and then we'll see some transactions happen."

Charles J. Ditkoff, vice chairman of Bank of America Merrill Lynch's (BAC) global healthcare group said that virtually no public offerings happen when the VIX volatility index is above 30. The VIX is currently at tracking above 40.

According to data compiled by Bloomberg, announced I.P.O.'s are up 90% and total 614 in the past twelve months; however almost of a quarter of withdrawn public offerings in that period were done since August.

There are only 2 up-coming IPO.'s in the next year. It's making private equity investors responsible for some of the biggest offerings like HCA (TD) , Kinder Morgan (KMI), Arcos Dorados (ARCO) and Freescale Semiconductor (FSL) and company owners look to M&A as an alternative way to cash out. "As the I.P.O. market continues to be shut, a lot of these companies will start turning to private equity or they will start turning to mergers and acquisitions," said Ditkoff of Bank of America Merrill Lynch. Merger activity will be a function of corporate cash and a slow growth environment in the U.S., said all participants of the panel.

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