New wave of IPOs on the horizon?
Tremayne Ducker, head of private company and private equity at Zeus Capital, takes a look at how the election of a majority government could impact the level of IPOs in the coming months.
All the talk around the general election meant that the public markets have been relatively quiet in the last few months. As the future of the country was uncertain, and the possibility of either a hung parliament or coalition government was high, businesses sat on the sidelines to see if the outcome would impact listings.
The best example of this reticence was found on the AIM Market. The first five months of 2015 saw five AIM IPOs, a big step down from the 24 seen during the same period in 2014. While a number of other factors have contributed to the slow start to the year, the uncertainty around the general election result was the key consideration for companies and advisers alike. In particular, businesses feared an impact on economic policy due to the stark differences between the major political parties on spending and cuts.
Now that the Conservative government has come into power, we think the impact on the IPO market in the coming months will be positive for both the North West and the rest of the UK.
Although continued austerity under the Conservative government may dampen growth in consumer demand over the short term, the economy should continue to grow strongly against the backdrop of “business friendly” economic policies, such as George Osborne’s Northern Powerhouse, as well as continuing low inflation and interest rates. This will benefit the outlook for many businesses and encourage investment in capital and people. Investment requires long term funding and an IPO presents an attractive option for many companies.
Providing the government is stable, and there is a focus on reducing the UK deficit, there will be continued confidence in the UK’s ability to manage its spending and repay its debts. As well as debt being brought down, the continued attractiveness of equities to investors looking to achieve a high return on the stock markets will likely increase activity on business IPOs. Compare this to a Labour victory, which would have seen increased spending and government borrowing affecting investor confidence.
The North West was at the heart of AIM IPOs last year, so we are likely to see another bumper period of listings from the region in the coming months. This is due to a combination of continued economic growth and an increase in investor appetite. In particular, we will see the continuation of private equity backed companies taking advantage of investors’ appetites for exiting via the public markets to create superior returns.
In addition, the breadth of industry sectors already represented on AIM in the North West demonstrates the appetite across a wide range of sectors, from financial services, pharmaceuticals and biotechnology and support services. To put this in perspective, North West AIM-listed businesses are taken from 26 sectors worth a total value of £8.7bn.
At Zeus Capital, we have completed a number of notable AIM listings in the region including the £300m IPO of boohoo.com, the £66m IPO of entu and 4d pharma’s initial float of £16.5m followed by two additional placings over the last year.
Looking ahead, the referendum on the UK’s membership of the EU, expected to take place at the back end of 2016 or early 2017, is likely to be the next event to cause public market investors to take stock. North West businesses which are looking at raising capital over the next year should consider taking advantage of the favourable conditions of AIM before they miss the boat.
