A closely watched canary in the coal mine, signifying a change in economic sentiment, is the number of companies shelving flotations. Thus many will be watching to see if the pulled initial public offering (IPO) of US-based-solar thermal company BrightSource Energy on Thursday spells bad news for wider flotations and general exit activity. BrightSource has corporate venturing backing from France-based power equipment company Alstom and US-based power producer Caithness Development.
The shelved float apparently marks a dramatic turnaround in sentiment from the first quarter, which was the best three month start to the year in the US since 2007 for IPOs, with 80% of the quarter’s initial public offerings producing positive returns, according to accountancy firm PricewaterhouseCoopers.
What should we make of BrightSource’s shelved IPO? It is perhaps tempting to see it as a specific issue for the clean tech sector, which has been dogged by negative headlines, epitomised by the collapse of US-based solar company Solyndra last year, and reinforced this month by the decision of Germany-based solar company Q-Cells to file for insolvency.. An analysis by news provider PE Hub on Thursday points out there are a number of clean tech companies which filed last year that have yet to go public.
Yet those with links to clean tech,are quick to downplay suggestions BrightSource pulling its IPO points to a wider malaise in the sector. Girish Nadkarni, head of ABB Technology Ventures, the corporate venturing unit of Swiss-based conglomerate ABB, said: "BrightSource’s decision should not be read as a referendum on cleantech in general. Solar is a competitive sector and has been particularly sensitive to macroeconomic uncertainties but we believe it will continue to grow." He added ABB Technology Ventures had recently invested in solar companies Novatec Solar and GreenVolts.
Instead the BrightSource cancellation may point to a wider market problem – in fact Nadkarni thinks clean-tech is actually one of the more sensible places to invest. He said: "The market environment is not currently stock-friendly and IPO activity is down overall. We plan to continue selectively investing to add to our cleantech capabilities because these technologies are what customers are asking for."
Given Spanish ten year bond yields spiked to above 6% on Friday and the wider traded markets have been risk-off in recent days, it is certainly the case that BrightSource’s decision to pull its float could be a symptom of wider difficulties. However, if that is the case, not every sector is in risk-off mood: social network Facebook bought one and a half year old photo application company Instagram on Tuesday for $1bn.
The market difficulties line is something BrightSource wants to portray. John Woolard, president and chief executive of BrightSource Energy, said of the IPO cancellation: "While we received significant interest from potential investors, the continued market and economic volatility are not optimal conditions for an IPO. As a company, we have consistently made decisions in the best interest of our shareholders, employees and customers, and we will continue to do so."
We should be able to get a good idea very quickly in the coming weeks if the BrightSource float cancellation was predominantly a market issue. If the pulled IPO count ticks up quickly it is the latter. If not, analysts should begin to look hard both at the wider clean-tech sector and at BrightSource itself to see why this company, which wanted to float with a market capitalisation of about $1bn, decided to hold back from listing.