Local IPO recovery continues despite recent flops: Research

The recovery of the local and global initial public offering markets continues despite recent failed listings, according to research by EY.

In Australia, the proceeds raised from IPOs was around US$5.3 billion (A$5.6 billion) for the first half of 2014, six times higher compared to the first half of 2013.

The volume of IPOs remained largely unchanged.

Globally there were 588 deals raising around US$117.7 billion (A$125.3 billion) in the first six months of the year, an increase of 60% and 67% respectively on the same period in 2013 and the highest amount of capital raised in the first half of a year since 2007.

EY Oceania transaction support leader Gary Nicholson told SmartCompany other than resources companies, there hadn’t been any significant IPOs since the global financial crisis resulting in pent up demand.

“Then from the middle of last year we saw the start of industrial stocks come back into favour,” he says.

“The key driver is there are so many privately owned businesses that need capital for growth or as an exit mechanism for shareholders and they have been waiting since the global financial crisis.”

The strong data from EY contrasts with the failure of Mantra and OzSale’s planned IPOs earlier this year.

Nicholson says while he can’t comment on individual companies, EY conducted research last year with institutional investors about what they look for in floats.

“There were three key issues they look for: the right team, right story and right price,” he says.

In terms of the team, institutional investors want to know whether the management team has the ability to demonstrate they can grow a business successfully through economic cycles.

“The story is whether there is something in the business that gives it robust earnings and captures the imagination of investors,” Nicholson says.

“On price, companies need to get the timing right. If they go before they are prepared they will find it difficult to get away.”

Nicholson says the advice he gives companies is to get the timing right and don’t push the opening price expectation too high.

The burgeoning market for IPOs also includes a lot of companies looking at dual track processes, running an IPO in parallel with a trade sale.

This was the process used recently by Peters Ice Cream and Nicholson says it “adds to the competitive edge” by “playing off” trade buyers with the IPO process.

Nicholson says for family owned businesses it is a matter of making sure the business is prepared for being in the public spotlight.

“You really should be acting as if you are a public company at least 12 months ahead of being listed on the exchange,” he says.