Market's Weakness Saps IPO Pipeline

Scratch two more IPOs.

Verizon Wireless became the latest company to delay its IPO Monday, the same day MindLeaders.com pulled its initial offering. Both were victims of a series of earnings warnings and violence in the Middle East, which have pushed down the major stock indexes and taken the pipeline for initial public offerings with them.

As a result, announcements saying an IPO is "being withdrawn due to market conditions" has become an increasingly common refrain. As many as 20 companies have withdrawn their IPOs, while at least six have been postponed in the last three weeks. Should the dismal performance of the Nasdaq, the Dow and S&P 500 continue, the IPO market may well falter in the near term.

There are 17 IPOs slated for the remainder of October, according to IPO.com, a Web site that tracks early stage capital market investing information.

Verizon Wireless, formed by Verizon Communications (VZ) and Vodafone (VOD), said in a statement that "recent volatility of capital markets has created an environment in which it is prudent to defer the offering."

Randall Roth, a senior research analyst at Renaissance Capital, which runs the IPO Plus Aftermarket Fund, calls the recent IPO pullbacks "pretty drastic."

"There was a time when IPOs faded away and companies were more reluctant to formally withdraw because it was like putting a tombstone in the ground," Roth adds. "It's hard to come back and reestablish credibility after that."

The tumbling markets certainly take much of the blame for the slew of companies that have taken the step of filing an "RW," or request for withdrawal, with the Securities and Exchange Commission. Should the decline continue, "we'll see people hold off [of an IPO] if they can," Roth says.

However, he warns that not all the companies pulling back can blame the markets entirely: "There are some very sector- or company-specific reasons. The bounds have shifted. What was acceptable a year ago is not acceptable anymore."

As an example, he cites Sweden's B2 Bredband, which postponed a week ago. The company provides broadband services to residential and small- and medium-sized businesses. "Maybe a year ago people would have believed it. But it's in a capital-intensive industry and that was okay when capital was widely available," he says. "But now there's a capital crunch, with the AT&Ts (T) and the Vodafones (VOD) cutting back."

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