Ernst & Young: UK IPO activity picks up
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Richard Harding |
Partner Richard Harding at Ernst & Young looks at the IPO market in 2010 so far – what began with a false start should pick up later on in the year. The false start At the start of this quarter a significant increase in IPO activity was expected, led by a number of significant consumer services private equity (PE) backed IPOs. These were expected to open the door for a line of other PE-backed and entrepreneurial floats, predominately on the Main market. But, the frontrunners stalled at the last fence and the floats of Travelport and New Look were postponed. The threat of a double dip recession and the ripple effect of the sovereign debt situation in Portugal, Spain, and above all Greece, created uncertainty. Since then there has also been a lot of talk about the aggressive pricing of PE owners and the unwillingness of the market to pay premium prices to de-lever highly-geared businesses. A late recovery The successful IPOs of Supergroup, CPP, Promethean World, Metric Property Investment, and African Barrick Gold on the Main Market, as well as several AIM floats, added some respectability to early predictions of a first quarter boom. In all these cases, the fundraisings were to finance growth rather than reduce borrowings. In the first quarter of 2010, 11 companies listed in the UK – the highest number of IPOs in Europe by country, followed by Poland (8) – according to Ernst & Young’s Global IPO update. UK IPOs represented 28% of the total listings in Europe (39) worth US$2 billion. The first three months of 2010 is an improved picture on the same period last year, which saw no deals until the second quarter of 2009. There were more UK IPOs in quarter one 2010 than in full year 2009 (8). Implications for the market going forward It is clear that it is a buyers’ market and that investors are being choosy about where they put their money. But, funds are still available to support the strongest float candidates with realistic pricing. The market has put a clear marker down to the PE owners of highly geared businesses that it expects a price discount to sort out the debt problems – this is a discount that the private equity owners may well not be willing or able to give up. Investors are looking for good growth prospects, so companies preparing for float should be managing their debt to equity ratio and ensuring that they have real clarity in their equity growth story before trying out the market. Looking ahead The threat of a hung parliament and the uncertainty it will cause is likely to reduce IPO activity between now and June. The gap between the election and the start of the summer break is a short one and may not be sufficient to encourage companies to try the market. In the last quarter of the year, we expect there will be a pick up in UK activity. More articles in
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