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The Grinch this holiday season may well prove to be some of the nation’s largest banks. With losses continuing to mount due to the collapse of the mortgage market, short-term loans are drying up and consumer confidence is falling.
The grim reaper greetings from Bank of America, Wachovia, Citigroup and JPMorgan, though, are likely to extend well beyond Christmas, creating havoc for IT budgets, headaches for corporate managers and casting doubts on tech IPOs in 2008.
United Online may have been the first victim when it announced Dec. 12 it was pulling its proposed IPO for Classmates.com. Hoping to raise as much as $120 million by going public, United simply folded its tent.
“United Online has determined that proceeding with the initial public offering under current market conditions would not be in the best interests of its stockholders,” the company said in a statement.
Pulling down the IPO will cost United Online as much as $5.5 million in the fourth quarter, the company said.
Read more here about IT workers are casting economic doubt… again.
Before the bank bleeding began, tech had enjoyed a good IPO year, highlighted by VMware’s impressive August debut. The virtualization software firm raised more than $1 billion in its public offering. That may quickly become a fading trend, according to Carl Steidtmann, chief economist for Deloitte Research.
United Online, for example, announced its classmates.com IPO in August, just weeks after VMware’s heady IPO. It seemed like the right idea at the time.
“Businesses don’t like uncertainty and it’s always easy to wait,” Steidtman said. “As the combination of an availability of buyers and valuations going down, the desirability of bringing an IPO is reduced.”
Steidtmann was more circumspect about IPOs that are already in the works, particularly Larry Ellison’s NetSuite, an on-demand software firm that Ellison is currently offering 6.2 million shares through a Dutch auction. Ellison hopes to raise almost $100 million to reduce the company’s debt.
The Dutch auction, the same mechanism that Google used to go public in 2004, closes Dec. 19. “We’ll have just have to wait and see on that one,” Steidtmann said.
Steidtmann also predicted the distress signals from Wall Street will “certainly have a dampening effect for IT industry purchasing.”
However, Steidtmann added, corporate spending plans are more dependent on profitability than credit markets. “If they don’t have capital to spend, they won’t,” he said. “In a capital economy, it’s profits that drive the market.”
In addition to corporate profitability, Steidtmann said two key factors come into play for corporations: debt creation and the ability to raise equity.
Nothing, though, is more important than cold, hard cash.
“In a credit crunch, there’s nothing like having money in the bank,” Steidtmann said.
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