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Battered IPO Market Getting Used to Playing with Pain

If yesterday's stock market plunge didn't hurt the IPO market, it's only because it's difficult to respond to outside stimuli when you've been beaten unconscious.

"In the short term, investors are saying, 'No mas!'" said Richard Smith, syndicate manager at

NationsBanc Montgomery Securities

. "They don't want to buy at any price -- it's an irrational time."

A too-full calendar of new issues and lack of interested buyers for those offerings that ventured out have resulted in pressure to cut the size or the price of some deals in past weeks. But now, not even cut-rate pricing can lure investors, Smith said. "We cannot entice with price!" he exclaimed.

Odes to Johnny Cochran aside, the market plunge has hobbled interest in upcoming IPOs. So awaiting debutantes, those smaller-cap uglies that usually fill the IPO dance card in August, are reacting in the only manner left open to them -- they're postponing their deals. A handful of smaller offerings yesterday cancelled their IPOs due to "market conditions," depleting this week's already lean calendar.


, a group of air conditioner contractors, and

Pacer International

, a trucking contractor, were among companies that postponed their offerings this week.

Those companies either desperate or foolhardy enough to trudge out in the downpour suffered the consequences.


(UNSRA:Nasdaq), a franchise that operates

Kentucky Fried Chicken

stands in Chile, and


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(SWRX:Nasdaq), a software products maker, both went out Monday and almost immediately fell below their offer prices. Last week's darling,

Cyberian Outpost

(COOL:Nasdaq), which was priced at 18 and then hit a high of 26, broke below its IPO price on Monday. Even Cyberian's Internet connection -- it sells computer hardware and software over the Net -- failed to lure many tightfisted investors.

"The IPO market has been in the throes of a correction long before the Dow," said Randall Roth, an analyst for

Renaissance Capital's

$12 million


IPO Aftermarket fund. Investors are just waiting for the bigger discounts on new offerings, Roth said.

If underwriters want to get deals done, they are going to have to lower prices, Roth argued, adding that the doldrums of the past few weeks were exacerbated by deal makers stubbornly refusing to give into pricing pressure. As a result, aftermarket performance has suffered, he said. The

IPO Monitor

aftermarket performance index of initial offerings stayed at 2.1 for the second consecutive week -- one of its lowest points of the year. That index number means that the average percentage gain in aftermarket price of the 30 most recent IPOs with a market capitalization of at least $100 million was just 2.1%, according to IPO Monitor. The index categorizes any performance below 10 as "poor." Just two weeks ago, the index was above 18.

NationBanc's Smith says, however, this is going to change. He predicted there will be a "revaluation" of offering prices, resulting in a time of bargains for those investors willing to shake off their new issue fears. "I think investors will be able to pay cheaper prices for some quality goods," Smith said.

As a result, the market will focus all the more closely on some upcoming deals, such as

24/7 Media



, two Internet concerns that are expected to generate great interest, possibly as soon as next week. Should either of these or any other new issue smash through the low beams of recent aftermarket performance, IPOs will once again become the hot, volatile and indecipherable securities that investors love to hate.