The Return of the IPO Market? C
Consultant Perspective
Guy Carr
Business Development Director – UK IPO
gcarr1@uk.ey.com
2012 - A faltering start The last four years have seen a record low number of IPOs on the London Stock Exchange and 2012 opened with gloomy market sentiment and uncertainty, with all eyes on the European debt crisis which had plagued the market for much of 2011. Q1 is normally a relatively quiet quarter for IPOs and this was no exception, not helped by volatility in the markets remaining high for most of the quarter.
Guy joined Ernst & Young in 2006 as the Business Development Director for the UK Strategic Growth Market group, working with CEOs and CFOs of fast-growth businesses supporting them to expand and raise capital. In 2010 Guy began working directly with the Ernst & Young UK IPO team who have helped businesses raise more money over the last 15 year on the London Stock Exchange than any other firm. In his current role he works with business, UK and international, to support their preparation for a listing on one of the London markets.
Nevertheless, the market has begun to show signs of stabilisation. Confidence has slowly begun to return, and Euro crisis concerns slightly eased after a majority of Greece’s bondholders agreed to participate in debt restructuring. This was reflected in reduced market volatility over the last few weeks of Q1. Equity markets also rallied to their highest levels for the last six months.
As a result of the above, in the six weeks leading up to the end of Q1, the market saw six more companies float on the LSE, with signs of more offerings to come (including several public statements of intentions to float), both on Main Market and AIM followed by a further Main Market listing (NMC Healthcare) in the first week of April.
There were encouraging signs across other European markets as well with two successful large-scale listings towards the end of March - an US$899mn IPO by logistics business DKSH on the Zurich Exchange, and a US$1.1bn IPO by cable- provider Ziggo in the Amsterdam exchange. The latter float was Europe’s largest IPO in almost a year.
Businesses around the world, who are IPO ready, are currently hesitant from floating due to a number of factors which impact different markets in different ways, which include:
n Continued high volatility on the stock market, which cause IPO windows to open and close far more quickly than before.
n A ‘you go first’ mentality, where businesses wait for other companies to lead the way, but are prepared to go quickly if the market reaction is positive.
n A continued ’mismatch‘ between investors and vendors/advisors around pricing.
With the latter points, a successful equity story and realistic valuation is imperative for a warm reception in the market. We would suspect that several firms in the London pipeline will be monitoring the post- IPO performance of DKSH and Ziggo closely, before being similarly encouraged to make a step into the market.
The 2012 Budget announced by the UK Government in early March will also do no harm to the AIM’s (and indeed the Main Market’s) future prospects. With corporation tax rates decreasing in the next few years, coupled with business-friendly incentives such as the introduction of lower tax rates for company patents, the UK is becoming a more attractive base for establishing company headquarters, and hence a target for future floatations.
Private equity
IPOs have made up a small fraction of private equity exits in the UK over the last 15 years. Whilst the pipeline of PE-backed businesses looking at IPO as a possible option is encouraging, when compared to other regions such as the US and mainland Europe the numbers are still significantly lower.
However, of the two main market listings in Q1 both had some level of private equity backing. Energy Assets Group wholly owned by Macquarie ahead of its IPO in March is a UK based, private equity- backed IPO, a combination that has been as rare as hen’s teeth since the well publicised problem encountered by Promethean in 2010. However, encouragingly, this IPO looks to have been well received by the market with the share price holding
42 Author Viewpoint
Risk and Insurance in Private Equity and M&A 2012/13
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