Appetite of Investors for I.P.O.s Seems to Ebb

Companies are rushing to the public markets on Wall Street to sell their shares, and this week is expected to be the busiest for initial public offerings in more than seven years.

But even as soaring stocks have fueled a surge in I.P.O.s, there are signs that investors are beginning to sour on the fresh arrivals. With a string of prominent companies set to go public, the week could provide a barometer for just how many new stocks investors will receive enthusiastically.

Already, it appears that appetite is waning. An exchange-traded fund that tracks the performance of recent offerings is down 2 percent so far this year, while the Standard & Poor’s 500-stock index has ended up roughly flat. Just a month ago, the fund, created by Renaissance Capital, was up 8 percent for the year.

“The sound of that drop is the sound of the I.P.O. window starting to close,” said Kathleen S. Smith, a principal of Renaissance Capital, which researches new listings. “It’s not going to close all the way, but it’s going to get more selective.”

One big company making its debut, the hotel chain La Quinta Holdings, took a cautious approach in its pricing Tuesday evening. La Quinta, which is being taken public by the Blackstone Group, a giant private equity firm, priced its shares at $17 each, below an expected range of $18 to $21.

At that level, La Quinta raised $650 million, achieving a valuation of roughly $2 billion going into its trading debut.
Sixteen companies in all are expected to price their share offerings this week, the most since December 2006, by Renaissance Capital’s count. Among them is Ally Financial, the former financing arm of General Motors, whose listing will allow the Treasury Department to reduce its stake in Ally.

Investors will be paying close attention to how investors receive the companies on Wednesday, and whether they succumb to the latest pullback in the broader markets.

Some recent highly anticipated listings have already turned out to be disappointments.

King Digital Entertainment, which makes the popular Candy Crush Saga game, has yet to trade above the level in its I.P.O. last month. Castlight Health, a health care software start-up, has fallen back to earth after a huge pop in its first trading day.

Still, some companies are betting that a long-term market rally will resume. On Tuesday, Zoe’s Kitchen, a restaurant chain expected to go public this week, raised its expectations for its debut, saying in a regulatory filing that it expected to price its shares at $13 to $15, a full $2 higher than its previous estimate.

The market jitters may prove to be a passing phase.

“What we’re seeing in the marketplace is continued exuberance,” said Neil Dhar, head of the United States capital markets practice at PricewaterhouseCoopers. “We have a number of clients â€" private equity and corporates â€" that are looking to get to the marketplace really as fast as possible.”

The conservative pricing may help La Quinta achieve a more impressive performance in its first day of trading. Blackstone, which is not selling stock in the deal and will remain the majority shareholder, plans to wait to sell its stake over time.

The deal is expected to be a successful one for Blackstone. At the I.P.O. price, Blackstone has achieved a return on paper of nearly three times its invested capital, including dividends it has collected from the company, according to a person briefed on the deal who was not authorized to speak publicly about it.

Blackstone bought La Quinta near the top of the market, paying $3.4 billion in 2006. The chain, based in Irving, Tex., soon grappled with the economic downturn, which wounded the hotel business as travelers cut back.

Now, after expanding its portfolio of franchised hotels and establishing a bigger presence in Latin America, La Quinta is hoping to benefit from increased consumer spending. It was set to start trading on Wednesday under the ticker symbol LQ on the New York Stock Exchange.

Hilton, La Quinta’s larger cousin, which Blackstone bought in 2007, has performed reasonably well since its splashy debut in December, with its shares up nearly 7 percent from the I.P.O. price. Another hotel company backed by Blackstone, Extended Stay America, has risen nearly 15 percent since it went public in November.

Mr. Dhar of PricewaterhouseCoopers said that the “openings and shuttings” of a favorable market window were more pronounced now than in the past. Companies, he said, are planning accordingly. “They’re a lot more diligent about preparing their marketing materials and their regulatory materials,” he said, “so they can jump in.”