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:IPO MARKETS RETURNING
– and better times ahead for
TO NORMAL public market investors
FEW SECTORS OF INTERNATIONAL finance
have been affected as adversely by the global
economic slowdown, the aftermath of 11
September and the fallout from the collapse of
Enron, the US energy giant, as the market for
new equity issues.
Last year the global IPO market was worth
$85 billion – less than half the $196 billion it
totalled in 2000. This year it is estimated that
volumes will be more in line with 2001 than
with the previous year.
Such arid conditions are detrimental both to
investors and to those companies seeking to
raise new money in the primary equity markets.
Investors need regular opportunities to put
their money into a variety of companies, in a
range of sectors, if they are to adequately spread
their risk. Companies, in turn, need reliable
access to as many sources of capital as possible.
Over the last 12 months, however, conditions
for new issues in the primary equity markets
have been poor, with investor confidence at a
markedly low ebb. Stock markets world-wide
have been effectively closed to all but the most
stunning of debutantes and even these issues
have had to be priced at the low end of
expectations.
With the absence of an IPO route private
equity-backed companies have been turning
to trade sales or secondary buyouts as their
preferred exit routes. Last year IK alone
achieved four healthy realisations via trade sales.
In better days some of these companies might
have listed. Private equity houses are nothing if
not resourceful and will achieve the right exits
for their investments, come what may. But for
public market investors it is a different story and
they have been deprived of what might have
been attractive investment opportunities.
Fortunately the tide seems to be turning and
in the recent period the supply and demand for
capital has begun to swing slowly into balance.
This year has already seen a number of
private equity-backed companies – including
IK’s Alfa Laval, Nobia and Intrum Justitia –
being floated. Although the pricing on some
of these issues has been sensitive, a trail has
been blazed and the backlog of companies that
were stranded on the slip-way last year can now
begin to clear.
However,
there have been
lessons to be
learnt on both
sides. All IPO
participants must be realistic about what they
can achieve from the situation. Institutions
cannot expect IPOs to be discounted to the
extent that companies are significantly undersold.
Vendors and their advisors, in turn, must ensure
that the share price is not so toppish that it sinks
as soon as trading begins. Vendors should also
retain a meaningful portion of shares so as to
demonstrate a vested interest in their company’s
continuing success as a quoted concern.
The last year or so has been a difficult time
for aspirant stock market joinees, their vendors,
sponsors and prospective investors. IPOs are
not for the faint-hearted and will always be
something of an educated gamble. Nevertheless,
a smoothing of the peaks and troughs that have
“After a difficult year for aspirant stock market joinees, their
vendors, sponsors and prospective investors, it seems that supply
and demand for capital has begun to swing slowly into balance.”
come to characterise stock market listing and
investing would be desirable with markets
‘well-functioning’ for a greater part of the
business cycle, rather than in boom times
only. This has, however, become more difficult
with many hedge funds stagging and shorting
new IPOs.
Increased stock market stability would
benefit companies through providing a reliable
means of realising and raising new capital. It
would also enable investors to judge companies
on their individual merits and not see their
market value influenced so unduly by factors
outside their control.
Björn Savén, Chief Executive