Jan. 5 (Bloomberg) -- Even if the Standard & Poor's 500 Index rallies 24 percent this year, there's little chance of a similar rebound in U.S. initial public offerings.

It may take until 2011 for the number of companies going public to return to their 2007 level, according to data compiled by the University of Florida. While the S&P 500 rose an average of 24 percent in the first year after a market plunge, the data show, it takes 34 months on average for underwriting to return to its rate at the start of a slowdown.

That's bad news for top underwriter Citigroup Inc. and Bank of America Corp., which ranked fourth last year. Fees for new share sales in the U.S. fell 66 percent in 2008 to their lowest level in five years, from $2.94 billion in 2007, according to data compiled by Bloomberg. The banks, whose share prices were hammered last year, can't count on the U.S. IPO market to help rebuild revenue this year.

"It looks bleak," said Jay Ritter, a finance professor at the University of Florida in Gainesville who has tracked IPO data going back to 1960. "The probability of a sharp turnaround is pretty low."

There may be some improvement this year as stocks stabilize. Yet a recession, the lowest valuation for equities in more than 20 years and the fewest number of offerings in the pipeline since at least 2004 may slow a recovery of the IPO market.

Buyout funds managed by Carlyle Group and Madison Dearborn Partners LP have delayed plans to cash out investments as new offerings dwindled to the slowest pace since 1977. Small companies backed by venture capitalists such as TPG Inc. are searching for other sources of funding and cutting staff.

‘Whole Ecosystem'

"There's a whole ecosystem that depends on the IPO, and this cycle is particularly painful," said Lise Buyer, a former Wall Street analyst who advises companies trying to go public. "It might be three years before we get the number of deals up there again, but good, solid companies will be going out to market much sooner than that," said Buyer, who worked at Google Inc. for two years helping manage the company's 2004 IPO.

IPOs historically dry up at the end of a bear market and don't begin to recover for months after a rally as issuers and investors wait for signs of stability, data compiled by the University of Florida and Bloomberg show. After market slumps of 2000-2002 and 1973-1974, when the S&P 500 lost almost half of its value, it took at least 13 months for IPOs to recover to the rate during the bear market. It took 42 months after the 1987 crash and less than six months after the bear markets of 1966, 1982 and 1990, when stocks had smaller declines.

The S&P 500's 52 percent slump from its peak in October 2007 to the Nov. 20 trough makes it the worst bear market since 1930, according to the Stock Trader's Almanac.

Filings Pulled

The pipeline for new IPOs is thinning, as 38 companies withdrew or postponed their filings with the Securities and Exchange Commission last quarter.

There were 166 companies waiting to tap the public markets for funding as of Dec. 23, according to Renaissance Capital LLC's IPOHome.com. The biggest are Mead Johnson Nutrition Co., a baby-food maker owned by Bristol-Myers Squibb Co., and Gillette, Wyoming-based Cloud Peak Energy Inc., the No. 2 U.S. coal producer. Each hopes to attract as much as $1 billion.

Only Grand Canyon Education Inc., a Phoenix-based online university, and Home Bancorp Inc. of Lafayette, Louisiana, went public last quarter, raising a total of $234 million.

What Investors Want

"Next year will be characterized by very high quality deals, because that's all that investors want," Dan Cummings, co-head of equity capital markets at Merrill Lynch & Co., said in a December interview. Merrill, the No. 2 underwriter in 2008, was bought by Charlotte, North Carolina-based Bank of America, the third-biggest U.S. bank by assets.

"A lot of people look at IPO companies for growth, and the hardest part for people to reconcile is what's the real likelihood for that in 2009 and 2010," Cummings said.

The U.S. economy probably will contract 1 percent this year, the first annual drop since 1982, according to the median estimate in a Bloomberg survey of 55 economists. Companies in the S&P 500 trade at about 13.5 times normalized earnings, the lowest rate in at least 20 years, according to Minneapolis-based money manager Leuthold Group LLC.

The slumping market prompted U.S. Power Generating Co., partly owned by Chicago-based buyout firm Madison Dearborn and the family that controls Hunt Oil Co., to shelve plans for a $500 million offering. New York-based U.S. Power wanted to avoid the $500,000 cost of updating its prospectus with quarterly results as equity prices languished, Chief Financial Officer Jeff Hunter said.

Unexpected Risks

"With the meltdown in the credit market, we had to rewrite our risk factors because of things we previously hadn't thought were risks, like exposure to a major money-center bank as a hedge provider," Hunter said.

SS&C Technologies Inc., a software maker acquired by Washington-based Carlyle Group in 2005 for $942 million, hoped to use some of its IPO proceeds for acquisitions and to pay down debt. Employees with stock-option awards also would have benefited from the deal, which the company abandoned on Oct. 29.

"We have an awful lot of people who have options at SS&C, and you can't eat those options, or use them as a down payment," said William Stone, chairman of Windsor, Connecticut- based SS&C. "You can do an IPO, and a lot of people benefit. We lose one of the real engines of growth as an economy when the opportunities to do that go by the wayside."

‘Rare Moment in Time'

Investors' concern that some companies will be unable to refinance debt may slow private-equity led IPOs. Leveraged buyout funds bought $680 billion of U.S. public companies between 2004 and 2007, according to Bloomberg data.

"The public has gotten quite cautious and concerned about offerings from private equity," said Richard Truesdell, co-head of the capital-markets group at Davis Polk & Wardwell, the No. 1 law firm for IPOs last year. "This is a rare moment in time when every capital-raising market is all but shut down."

The IPO market will also remain closed to companies backed by venture capital until at least 2010, according to 72 percent of the 400 firms surveyed last month by the National Venture Capital Association, a trade organization in Arlington, Virginia. An average of 50 such companies have gone public every year since 2000, the group's data show.

XDx Inc., a Brisbane, California-based biotechnology company that raised $100 million from venture capital firms including TPG and Kleiner Perkins Caufield & Byers, abandoned plans for an IPO in September as the market ground to a halt.

‘Nuclear Winter'

"With every day that went by, the bankers said this is going to get tougher," Chief Executive Officer Pierre Cassigneul said in an interview. "It was just the beginning of the nuclear winter. Even with very good prospects, it's hard to get funding."

XDx is considering "all options" to raise the $25 million needed to fund the company through 2010, when it expects to break even, Cassigneul said. XDx suspended a project to develop tests for lung-transplant rejection and cut more than a third of its staff to focus on increasing sales.

"You need an iconic name to break the logjam, and sometime in the next year or two it will break," said Rory O'Driscoll, a managing director at Foster City, California-based Scale Venture Partners, whose IPC The Hospitalist Co. was one of six venture- backed IPOs last year. "Until then, talking to bankers about an IPO is a waste of time. Our main focus is on building great companies, and the exits will come when the markets are ready."

Door Opener

New offerings are important for investment banks because they help fuel growth in other areas, such as advising on mergers and managing money for executives with newfound wealth.

"IPOs typically turn out to be the principal door opener toward a broader investment-banking relationship," said Ray Soifer, who followed brokerages at New York-based Brown Brothers Harriman & Co. for 17 years and is now chairman of Soifer Consulting LLC in Green Valley, Arizona.

Fees from public companies selling additional shares have helped New York-based Citigroup, Merrill, Goldman Sachs Group Inc. and JPMorgan Chase & Co. more than offset the decline in IPOs this year. Revenue from secondary share sales totaled about $4.44 billion, up from $3.24 billion in 2007, as banks and brokerages raised funds to bolster balance sheets battered by losses on loans that have declined in value.

For banks such as Citigroup, which raised $16.5 billion in secondary share sales last year and received $65 billion from the U.S. Treasury Department, a recovery in the IPO market can't come soon enough. Citigroup slumped 77 percent in New York trading last year, losing its standing as the biggest U.S. bank by market value. The company now ranks fifth after Minneapolis- based U.S. Bancorp.

"We will see the IPO market reopen in 2009, at first with a trickle for selective companies and then building to be more robust toward the end of the year," said John Chirico, Citigroup's co-head of capital markets origination for the Americas.