Companies That Had Their IPO in 1987: From Optimism to Black Monday

1987 started strongly for both the stock and IPO market, with a surge in initial public offerings, fueled by robust investor confidence and a buoyant economy. However, the optimism was not to last. The latter part of the year witnessed a dramatic shift in sentiment, culminating in the infamous Black Monday on October 19, 1987. This day saw the largest one-day percentage decline in the history of the stock market, instilling confusion and panic among investors worldwide while in turn severely impacting the willingness of companies to go public.

• Favorable conditions for IPOs: The IPO market during the first part of the year was healthy and filled with investor optimism, fueled by a robust economy and low-interest stock market conditions.

• Market optimism: Early 1987 was characterized by investor optimism, with the stock market on a steady upward trajectory.

• The turning point: However, the latter part of the year saw a dramatic shift, with the October 19th crash (Black Monday) severely impacting the IPO landscape.

• Shift in investor sentiment: Post-Black Monday, the market witnessed a significant pullback in investor confidence, affecting the appetite for new IPOs and sending ripples well into 1988.

In 1987, the general market sentiment was predominately optimistic, spurred on by a bull market that had been running for the previous five years. Indices had been ticking steadily upward, while showing little signs of stopping. This period saw substantial economic growth, low unemployment rates, and relatively low inflation, factors that collectively buoyed investor confidence. The mid-1980s were characterized by a robust recovery from the early 1980s recession, fostering a climate of financial enthusiasm and a widespread belief in the continuing upward trajectory of the stock market. The IPO market was also incredibly healthy, with more companies than ever before going public and many of them having the wind in their backs thanks to the bull market of previous years.

However, the landscape started to shift as the year progressed. Despite the initial exuberance, warning signs began to emerge. The U.S. economy was showing signs of overheating, with rising inflation rates and increasing interest rates. The Federal Reserve, aiming to curb inflation, initiated a series of interest rate hikes. These moves began to cool off the equity markets and started to inject a sense of caution among investors.

The underlying issues came to a head on October 19, 1987, a day that came to be known as "Black Monday." The stock markets around the world crashed, with the Dow Jones Industrial Average plummeting by over 22% in a single day. This crash was one of the largest one-day percentage declines in stock market history and sent shockwaves through the financial world with the U.S. being far from the only affected country. The causes of the crash were multifaceted, including a combination of overvaluation, geopolitical concerns, and early computerized trading systems, which exacerbated the sell-off.

The crash also profoundly impacted the IPO market. The sentiment turned from bullish to extremely cautious, as investors reeled from the shock of the crash and reassessed the risk profile of equities. The appetite for new IPOs dwindled, as the market volatility made it difficult for companies to price their shares and for investors to confidently invest in them. Many planned IPOs were postponed or canceled, and the overall confidence in the market took time to recover. It is estimated that roughly 200 companies decided to hold off on going public, with less than 20 new IPOs being conducted in 1987 following the crash.

Two of the most talked about U.S. IPOs during 1987 were Nuveen and Conrail. Both of these companies are no longer on the public markets as Nuveen has gone private, and Conrail was the subject of a joint takeover between CSX and Norfolk Southern.

However, both of these pale in comparison to the IPO of British Petroleum. The British prime minister at the time, Margaret Thatcher, authorized a sale of the remainder of the government's stake in the energy giant, with the company going public as a result.

The financial services company Charles Schwab went public after management (and the founder) led a buyback of the company from Bank of America.

One of the world's leading cruise lines, Carnival Corporation, had its public offering in 1987.

Fastenal specializes in the wholesale distribution of industrial and construction supplies and is today well established globally. It went public in the summer of 1987.

Agouron Pharmaceuticals went public in 1987 and continued to be traded on the public markets until it was sold to Warner Lambert (which later merged with Pfizer).

Conmed manufactures various types of surgical equipment, and is well-established in its sector. It went public in the summer of 1987.

When looking back at the market and the general sentiment it’s easy to see a year of two dramatic halves. In the months leading up to the crash, conditions were extremely bullish and companies were generally extremely positive toward going public. Black Monday changed everything, with sentiment turning overwhelmingly negative and the IPO landscape shifting dramatically.