IPO
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There are a number of drivers to post IPO performance that are created before launch: having the right shareholder base, an appropriate capital structure, a strong supportable long-term story etc. Preparation and being able to test the level of appetite before launch are key components of this, as well as examining more fully what a “good” IPO looks like for the long-term benefi t of the Company and the exiting shareholders.
A big complaint from the market has been the lack of time to understand the specifi c business model and growth story. Weighty offer documents, given the regulatory required content, are not the ideal sales pitch and therefore the challenge remains for businesses listing to provide clarity on their model. Early engagement well ahead of IPO with potential long term institutional shareholders is a successful strategy for front running the business story. What consideration is given to the road map of future performance and the position within the wider retail market? Long- term momentum in share price provides a stronger base for future exit and access/support from the institutional investors. The companies that have seen an immediate fall from launch (Card Factory, Pets at Home, McColl’s) illustrate the challenge of demonstrating the strengths of what are, broadly speaking, market-leading retailers in their fi elds.
Furthermore, the sector has long attracted a heightened level of interest from all stakeholders (including the buying public) and therefore messaging to the ‘market’ requires a carefully crafted communications strategy in order to address the various stakeholder groups (landlords, suppliers, credit insurers, lenders etc). With a public listing resulting in a broader shareholder base with differing agendas, there is naturally an added level of scrutiny and stakeholder management required.
The recent share price performance of retail IPOs shows that not all is well with the IPO market, especially when there is such a disconnect with the underlying index. There is continued clear excitement about an important exit route for PE backed businesses being open but questions are being asked by investors on how well prepared and considered the approach to market is. Are long term and trusted relationships being undermined by the hunt for the extra pound? Are the exiting shareholders considering what will happen with their retained stake especially if the market has been overly pushed at launch? At the time of an IPO, independent advice (i.e. not linked to valuation or execution) can seem in short supply or less relevant in a buoyant market however an IPO is the fi rst step in generating long term relationships with new owners of the business and, given the share price performance of recent IPOs, a number of retailers will be starting on the back foot.
Tim Metzgen, Director, KPMG Makinson Cowell
T: +44 (0) 20 7311 4291 E:
tim.metzgen@
kpmg.co.uk
Tim is a Director in KPMG Makinson Cowell, KPMG’s Capital Advisory business, which advises on the sources of capital across both the debt and equity markets. This advice is founded upon access to and trusted status with investors and covers a range of services including the approach to institutional equity investors, debt refi nancing, capital structure reviews for a broad spectrum of clients (from a number of FTSE 100 Corporates to smaller private businesses).
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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