NYSE wants to spur interest in IPO market

The exchange gets creative with its initiatives.

By Trefis Jun 25, 2012 10:56AM
TrefisNYSE Euronext (NYX) recently started the Small Business Connections: Marketing Meets Microfinancing workshop, in collaboration with Yelp (YELP), to help small businesses across the U.S. locate financial resources to raise capital for their establishments.

The workshop is nearing the end of its nationwide tour that included stops in Houston, Austin, New York, Boston and Chicago among other cities, with the aim to connect small businesses with established corporations such as Yelp.

The tour is part of the NYSE Big StartUp, an initiative by NYSE to help promote start-ups and small businesses. This initiative also includes a $1.5 million commitment, the Accion-NYSE Job Growth Fund, to help finance budding entrepreneurs.

NYSE's initiatives come just a few months after the implementation of the JOBS Act and are aimed to help support the IPO market, which has been dampened by the Facebook (FB) IPO handled by competitor Nasdaq OMX (NDAQ). As we head into the seasonally slower summer months for new issues, NYSE hopes that these efforts can help support some new issuance in the coming weeks and months.

A lull in the IPO market

The IPO market in the U.S. hit a dry stretch amid uncertain conditions and the controversial Facebook IPO, which have discouraged companies across the country. Several companies pulled their plans to file following Facebook's listing, and there have been no marketing roadshows to attract investors during this period. Several companies, including Corsair Component, Tria BeautyOnline, Palo Alto Networks and ServiceNow, have decided to reconsider their positions on going public in the aftermath of the saga.

We expect a short-term drought in the IPO market because market volatility causes uncertainty while pricing an IPO, as witnessed during the Facebook offering. The Facebook stock fell 35% in the first four weeks of trading, from its initial price of $38. Listings in the U.S. are, however, expected to pick up in the long term as the initiatives by the NYSE and the JOBS Act encourage new companies to go public.

NYSE Total US Listed Consolidated Volume

JOBS for all

The Jumpstart Our Business Startups (JOBS) Act, passed by the U.S. Government in April, provides opportunity for small companies by easing regulations and allowing unaccredited investors to participate in "crowdfunding" to raise capital. Under the bill, companies with less than $1 billion in revenue, termed "emerging growth companies," are exempt from Sarbanes-Oxley audited financial reports and Dodd-Frank compensation disclosures for up to five years and can meet investors before filing.

Small-to-midcap companies are usually reluctant to go public because they are discouraged by the legal, marketing and accounting costs involved, as well as the requirement to disclose quarterly financial and business information, which poses a competitive threat to their operations. The JOBS Act, however, considerably reduces the regulatory burden on emerging companies and makes it easier for them to go public.

Our price estimate for NYSE Euronext's stock is $34, approximately 40% above the current market price, as we expect the company's initiatives such as the NYSE BigStartup, collaborations with Corpedia (See NYSE Enhances Technolody Services Platform With Corpedia) and Xignite to expand its online services, to help its core businesses grow over our forecast period.

We will keep a close eye on the exchange's performance in coming months as it has protested vehemently against NASDAQ's $40 million compensation fund, claiming that it is anti-competitive and will negatively impact the company's market share. (See Is Nasdaq's $40 Million Mea Culpa Enough To Undo The Damage?)

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