From Special Report:
Autumn Investment Monitor September 2013 1hr
London’s IPO market sees activity increase
Royal Mail intended floatation in 2014 is another boost for London’s IPO market.
London’s initial public offering (IPO) market is alive again as 2013 has seen activity pick up – but for 2014 the picture is much rosier.
The current levels of activity are still low in contrast to the boom years. Between 2004 and 2007, 1,156 companies were listed, raising £67.2bn. In 2006, the record year, £25.6bn of shares were sold in 307 IPOs.
In 2009, the worst year on record when the UK’s recession was in full force and the stockmarket plunged, only 13 companies came to market – raising a paltry £600m between them.
In 2012, only 53 companies undertook an IPO. Indeed, apart from 2009, 2012 was the worst year for IPOs on the domestic main market in at least the past 15 years as just £1.1bn was raised, one-quarter of a typical year.
However, after including the international main market and the Alternative Investment Market (AIM), 2012 totalled £7.2bn, thanks mainly to the listing of Sberbank, making it the second-best year since the crisis began in 2008.
Over time, the domestic and international markets have attracted similar levels of new IPOs by value.
This year is set to be stronger. In the first half of 2013, the domestic market has already reached £1.8bn. The international market and AIM have added £724m of new listings, taking the first half total to £2.6bn.
With the flotation of Royal Mail (likely to be one of the top-10 IPOs in the past 15 years) causing excitement for the second half, the full-year total could reach £7.8bn – making 2013 the second-best year since 2007.
Next year, things are set to be better still. 2014 should see the best deal flow in years. The estimated value of deals next year should be roughly 50 per cent higher than 2013, even with a Royal Mail flotation setting a relatively high base.
The fashions and fortunes of new listings on the London Stock Exchange have been intrinsically linked to big global trends.
The dotcom bubble with its deflation, the economic and financial services boom of the mid-2000s, and its subsequent bust, and the commodity rush can all be seen in the patterns of IPOs, both in overall activity, but also as investment trends favoured some sectors, while others fell out of fashion. Half of all the money raised in London was in tech and telcos in 1990 and 2000.
Between 2005 and 2007, two-fifths were from financial companies. Between 2008 and 2011, two-fifths were from commodities companies.
Most IPOs are quite small. Indeed, just more than 95 per cent of all the IPOs between 1998 and the end of June 2013 collectively raised just 41 per cent of the total £151.8bn of capital raised on London’s equity markets. The largest 100 deals raised the other 59 per cent.
Very large issues are very rare indeed, with only 10 larger than £2.25bn since 1998. Glencore was the largest on record, raising £6.2bn, though this is a relatively small free float – only 17 per cent of the company was sold. Three-quarters of IPOs are less than £50m.
With the FTSE All-Share near all-time highs, and economic recovery slowly beginning to take hold, company managers can command higher valuations for their firms and will be more confident about becoming listed entities.
It takes several months to plan a listing so the deal pipeline will now be filling nicely.
A healthy IPO market is crucial to the long-term functioning of the economy and the financial system. It is a vital route for entrepreneurs to the all-important exit from the firms they have built and helps ensure capital is efficiently allocated.
Companies tend to mature and fade over time or get taken over and delisted, so new blood is necessary to provide pension funds, insurance companies and private investors with places to put their money.
The flotation of Royal Mail is the first in a series of mooted large new issues in the next couple of years. The return of the IPO is much to be welcomed.
Justin Cooper is chief executive officer of Capita Registrars
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