IPO activity hits three-year high

The second coming of the resources boom has provided a boost to Australia’s initial public offering market, with the number of floats in 2010 surging to 92, up from a paltry 42 in 2009.

About 80% of the floats were either resources companies or resources-related firms, including the biggest float of the year, the $6 billion IPO of rail giant QR National.

A total of $7.5 billion will be raised by the end of 2010 and while this is well down from the peak of IPO activity in 2007 – when there were a staggering 260 floats, raising over $10 billion – is a big improvement on the $3 billion raised last year and the $1.6 billion raise in 2008.

While the year will end with a rush of more than 40 floats, Sydney-based Deloitte Corporate Finance partner Steve Woosnam says the subdued performance of the sharemarket and the poor performance of companies that floated in 2009 appeared to keep a lid on activity, although this changed later in the year.

“It is back ended and skewed by two big floats in QR and Westfield, but nevertheless it’s quite a positive result,” he told SmartCompany.

Woosnam also points out that many private equity firms also favoured trade sales over floats during the year, including big private equity deals involving Loscam, ATF, Study Group and National Hearing.

The companies that did push on with a float have performed quite well. According to Deloitte’s figures, 54% of the companies that floated during 2010 ended the year with the share price higher than the issue price.

The average increase in share price was 33%, which is impressive when compared with a 4% slide in the ASX 200 over the year.

The best performer of the year was Doray Minerals, which has seen its shares leap 630% since raising $4.7 million in early February. Hunnu Coal, which raised $20 million, is up 540%, and minnow Forge Resources is up 400%.

QR National was easily the biggest float of the year at $4 billion, followed by Westfield Retail Trust, which hit the boards yesterday after raising a touch over $2 billion. The next biggest float was Miclyn Offshore Express, which raised $284 million.

Woosnam says this is indicative of the trend towards a large number of smaller resource-related floats.

He expects this to continue into 2011, although also expects to see floats from the healthcare sector and companies in and around the infrastructure space.

“I think there is still a volume of businesses that are waiting to be sold, and pricing hasn’t been right either for a float or trade sale. Supply of businesses that will float next year is reasonably strong at this stage.”

“I think the float of QR has demonstrated that there is a substantial amount of money that can be raised in the equity market for the right business. I think everybody will treat every opportunity on its merits and there will be equity available for the right businesses.”

One potential source of a number of floats is the private equity sector, where some firms have been forced to hang onto businesses far longer they would already like to.

Despite this, Woosnam does not expect to see private equity sales coming to market unless the price is right.

“I don’t think there will be fire sales. We are talking about sophisticated investors and they have a responsibility to their investors to get a reasonable price.”

He also expects to see the current trend towards dual-track sale processes – where a company pursues an IPO and a trade sale at the same time – continue in 2011.