As the markets turn soggy, even the City's most fancied floats get that sinking feeling

What do the Saatchis, a coach tour operator and an online bookie have in common? Abigail Townsend and Clayton Hirst report
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M&C Saatchi, the advertising agency founded by Maurice and Charles Saatchi in 1994, has put the breaks on its £75m July flotation.

M&C Saatchi, the advertising agency founded by Maurice and Charles Saatchi in 1994, has put the breaks on its £75m July flotation.

The business had originally hoped to list on the Alternative Investment Market, the London Stock Exchange's platform for smaller companies. But it is now expected to wait for an improvement in market conditions. September and October are being considered as alternative dates.

The ad agency joins a growing number of companies that have pulled or delayed their planned floats in recent weeks. Ironically, the year got off to a strong start for the initial public offering (IPO) market, with firms ranging from bike and car parts retailer Halfords to magazine publisher Centaur taking advantage of stabilising conditions to list.

Figures from the LSE show five IPOs on the main market in the first quarter of 2004, raising a total of £426.4m. AIM had 34, which raised £398.9m. That compares starkly to the nine IPOs that got away in the first quarter of 2003, raising just £62.9m.

Yet demand has suddenly started to dry up in the last few weeks. Sportswear manufacturer Umbro, which provides the England football team with kit, was one of the few that did make it to market - but at a considerably lower price than had been hoped for.

And in this month alone, fuel cell technology firm Intelligent Energy, coach holidays company Shearings and betting exchange Gaming Bourse have all pulled their floats.

Dhaval Joshi, global strategist at SG Securities, commented: "The best way to do an IPO is when the market is going up because you can get things away at a better price. We had that period at the start of the year, when equity markets had a good run, but it's stagnated since then."

A senior investment banker added: "The market is soggy. Only companies that have to float will come to the market in these conditions." Insiders also point to it being a "buyer's market", where institutions - many of which had their fingers burnt during the tech boom - are not prepared to overpay. "The shoe is definitely on the investor's foot," confirmed one director of a City bank's equity capital markets unit. "They are not going to buy anything at any price."

M&C executives are understood to be in no hurry to float. The listing is expected to raise £10m to £15m, which will be used to fund the company's continued expansion into continental Europe and Asia. M&C, which is advised by investment bank Lehman Brothers, also wants to float so it can use shares for staff incentives.

But the company's founders, who along with the Saatchi brothers include Bill Muirhead, Jeremy Sinclair and David Kershaw, are unlikely to want to float now and risk a lower valuation for the company they built from scratch.

M&C was created when Maurice (now Lord) and Charles were forced out of Saatchi & Saatchi, the group they founded. They turned M&C into one of the country's most successful advertising agencies, which counts British Airways, Dixons and the AA as its clients. The brothers, best known for their "Labour isn't working" campaign, were expected to cash in a small portion of their stake.

However, some are doubtful conditions will bounce back. SG's Mr Joshi said governments around the world were seeking to limit borrowing, be it by the consumer or by industry, and that could affect demand and spook markets. "It might scare people out of trying to get IPOs off the ground," he said. "Equities are going to remain stuck in this narrow trading range and until you break up and out of it, it's going to be hard to see any meaningful pick-up in IPOs."

That situation could affect other potential deals. Virgin Mobile, part of Sir Richard Branson's Virgin Group, is considering either a £1.3bn float or refinancing. Listing is Sir Richard's preferred option and speculation had been mounting that a deal could happen as early as this summer.

Another potential IPO is betting chain Coral Eurobet, owned by Charterhouse Capital Partners. City rumours say the private equity firm is keen to exit, preferably by a float.

European markets have also been affected by the negative sentiment French biotech group IDM pulled its €130.7m (£90.5m) float last week, citing market conditions, while Germany's Deutsche Post said it had not ruled out cancelling the IPO of its Postbank banking arm.