EquitiesMar 14 2016

Rise in fund listings buoys IPO activity

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Rise in fund listings buoys IPO activity

In its recent IPO Watch Europe 2015 report, PwC records a 16 per cent increase in the proceeds raised from initial public offerings (IPOs) across Europe to €57.4bn (£44.3bn) in 2015. This is in spite of the actual number falling from 376 in 2014 to 364 a year later.

The research shows that of the stock exchanges across Europe, London remained the most active market with 92 IPOs in the year raising roughly £11.9bn, even though the level of proceeds was down 16 per cent from the £15.7bn raised in 2014.

Viv Maclachlan, director at PwC’s UK capital markets group, notes in the report: “We rounded off last year with six bumper IPOs, which really saved the day from an annual IPO proceeds standpoint and took us to the highest proceeds since 2007. But that statistic masks the fact that overall it was not a particularly memorable year for London IPOs.”

However, the PwC report points out that 2015 was a strong year for fund listings, which it says accounted for roughly 25 per cent of the total London IPO proceeds in the year.

We expect markets to slow down ahead of the referendum but then pick up in the second half of the year Mark Hughes, PwC

Figures from the London Stock Exchange (LSE) for December show there were 25 fund listings on the facility raising approximately £3.3bn, an increase of 22.5 per cent compared with the previous year.

Key among these was the well-publicised launch of the Woodford Patient Capital Trust, which raised £800m, making it the third largest UK IPO in 2015, according to PwC’s report.

The focus of the Woodford trust on growing technology and biotech businesses demonstrates a rising trend towards more alternative companies and opportunities.

Likewise, the LSE notes that 2015 saw a “diverse range of funds, structures and innovations” coming to the market, including opportunities in the peer-to-peer lending space.

Darko Hajdukovic, head of research and product innovation in primary markets at the exchange, explains: “Last year saw an impressive increase in fund listings on the LSE from issuers from across the world. Particularly encouraging is not just the return of private equity funds to the market, but also that we have seen more capital raisings – primary and secondary – by innovative funds focusing on investing in alternative finance and fintech, such as peer-to-peer lending.

“This shows the market’s capacity to support growth through permanent capital in vehicles to finance a diverse range of investment strategies, notably including small and medium enterprises and crowdfunding.”

Meanwhile, a customer survey by Barclays Stockbrokers that gathered retail insight into IPOs, has shown investors are likely to hold an investment in a future IPO for more than one year, with more than 70 per cent of the firm’s clients and non-clients expected to hold an IPO investment for at least one to five years, if not longer.

The survey suggests some of the attractions of investing in a listing include an attractive starting share price and growth potential, as well as incentives. But overvalued shares, insufficient allocations and general market uncertainty were considered common drawbacks.

While PwC acknowledges that activity in the UK in the second half of 2015 was slowed by the general election and the turmoil in China, IPOs last year “have shown strong aftermarket performance”.

It notes 43 of the 51 listings in London that had raised more than $50m (£35m) were trading above their offer price and with an average share price performance of 16 per cent. In addition, 15 of the IPOs had joined the FTSE 250 index by the end of the year.

Recent research from PwC shows that there have been nine listings in London in 2016, to the end of February, including three Alternative Investment Market IPOs and six on the main market, with total proceeds reaching around £1.3bn.

Mark Hughes, capital markets leader at PwC, adds: “Given more challenging conditions, the London market has been remarkably resilient, accounting for more than 70 per cent of proceeds raised across Europe.

“We expect markets to slow down ahead of the referendum but then pick up in the second half of the year. There remains a healthy pipeline of quality London IPO candidates looking to list later in 2016.”

Nyree Stewart is features editor at Investment Adviser