IPO OUTLOOK: Pricing May Be Rough For IPOs This Week

After a spate of rocky debuts in the U.S. IPO market, this coming week's slate of deals are going to be facing a tougher pricing environment.

Of the eight initial public offerings that were expected to trade this past week, three were postponed--two for market reasons, one because it is being acquired--and three ended their first days of trading down.

Two of the three losers, AVG Technologies N.V. (AVG) and U.S. Silica Holdings Inc. (SLCA), were supposed to be oversubscribed and priced within their expected ranges before sinking on their debuts, a turn of events that can harden the hearts of even the most optimistic investors.

"What I hear from IPO bulls and the type of investors that play most deals is that they are likely to partake in fewer deals next week, unless some semblance of reality comes back" into the valuations that companies are seeking, said Scott Sweet, managing director of research firm IPOBoutique.com.

What's coming for the week ahead is a group of middling IPOs that aren't likely to knock anyone's socks off. The best of the bunch is EPAM Systems Inc., which provides outsourced software development and engineering from lower-cost workers in Central and Eastern Europe. The company is looking to raise $133 million by listing on the New York Stock Exchange Wednesday under the symbol "EPAM."

EPAM, whose customers include Thomson Reuters Corp. (TRI), Google Inc. (GOOG), and SAP AG (SAP), caters to independent software vendors and technology companies who want to move aspects of their tech development offshore to save money and time. In the first nine months of 2011, EPAM's revenue rose 59% to $239 million, and its net income nearly doubled to $32 million.

Whether strong growth like that will result in a stock that performs well isn't a sure thing. "EPAM is regarded as the best of the week--as was AVG last week, so there you go," said Sweet.

The remainder of the calendar reads like this: ChemoCentryx Inc., an unprofitable biopharmaceutical firm with no approved products, which wants to raise $64 million on the Nasdaq as CCXI; Roundy's Inc., a small Midwestern supermarket chain with negligible same-store sales growth, which wants to raise $218 million on the NYSE as "RNDY"; Ceres Inc., which is developing seeds for crops like switchgrass that can be used as renewable energy feedstocks, looking to raise $115 million on the Nasdaq as "CERE"; foreign exchange trading portal FX Alliance Inc., which wants to raise $80.6 million on the NYSE as "FX"; and Synacor Inc., an Internet services provider with a history of losses, which wants to raise $82 million on the Nasdaq as "SYNC."

Each offering has issues that are likely to cause investors to push for bargain prices, especially following the poor showing of U.S. Silica and AVG Technologies.

Roundy's doesn't have a track record of expanding far beyond its current concentration in Wisconsin; it plans to open four to five new stores a year in the Chicago area, where it now operates four stores. Same-store sales have either declined or grown at a miniscule pace in recent years, and it is competing against national and regional chains, including Wal-Mart Stores Inc. (WMT).

Ceres's conventionally bred seeds are still in the very early stages of commercialization, with most of its revenue coming from collaborative research and government grants, and any biotech-manipulated seeds it develops would hit the market in 2016, at the earliest. Not surprisingly, it's not profitable.

Foreign exchange trading portal FX Alliance benefited from rising trading volumes from 2001 to 2010, but it experienced a 7% decrease in total average daily trading volumes in the fourth quarter of 2011 due to market uncertainty stemming from the euro-zone crisis, and it expects these conditions to continue in the near term into 2012 as long as the outcome of Europe's debt crisis remains unsettled.

Synacor has experienced losses in every year other than 2009, and warns it may never be profitable; it says expects to increase its expenses as it grows its business.

Investors who didn't see great results this past week from their IPO forays are going to be more cautious looking ahead, said Scott Cutler, head of listings in the Americas for New York Stock Exchange parent NYSE Euronext.

"It will be a discerning market," he said. "There's going to be more pressure downward in terms of pricing."

-By Lynn Cowan, Dow Jones Newswires; 301-270-0323; lynn.cowan@dowjones.com

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