Investment appetite up for IPOs
among institutional investors
Right team, right story, right price: institutional investors support IPOs that came to market well prepared in 2012, and the outlook is positive through 2013.
We believe that renewed interest in IPOs as an investment opportunity likely reflects the high quality of companies that have successfully navigated their value journey despite the downturn. It also dispels the myth that investors are not interested in IPOs and demonstrates that confidence is returning.
Our new survey, Right team, right story, right price: Institutional investors support IPOs that come to market well prepared, shows that companies that are priced right, run by the right team and with a good story to tell will command the attention of the market.
What we heard:
- Confidence is rising
Four in every five (82%) of the 321 institutions we surveyed have invested in IPOs in the last 12 months, compared with one in five (18%) during the past two to three years.
Investors cite a brighter earnings outlook, improving macro-economic conditions and more stable equity markets as the top factors likely to improve market sentiment going forward.
- Pre-IPO preparation is critical
The top three success factors for IPOs are: attractive pricing (the leader by a considerable margin), a compelling equity story, and confidence in management. Timing was ranked a distant fourth.
- IPO challenges can be managed
The main challenges to IPO success are around pricing, the management team and going out to market too early.
- Successful companies deliver on promises
Three factors will secure success for a public company, according to our respondents: operational excellence, fulfilment of investors' expectations and ensuring that IPO proceeds are used as expected.
- Appetite for domestic investments dominates
Institutional investors expect to favor investment in domestic markets for the next three years. While North American investors are particularly domestic-focused, those in Europe and the MENA region are more adventurous.
- Rapid-growth market IPOs are seen as high risk and high cost
North American investors are particularly risk averse compared to European investors.
- Confidence and liquidity drive choice of exchange
Over half the companies surveyed now give active consideration to exchange choice when considering a listing; five years ago this issue was not on their radar.
- Impact of IPO legislation
New IPO market legislation, such as the recent US JOBS Act, is being introduced or explored in parts of the world. Among European investors, 41% believe the JOBS Act makes investment more attractive, and 39% of Asian investors agree, compared with just 23% of North American investors.
- Investors focus on post-IPO price performance
Almost three-quarters of investors take a performance-based approach to holding a stock, rather than set a time limit.
- PE and VC myths
Investors report varied perceptions on the price of PE- and VC-backed IPOs versus other IPOs. Only 40% of investors see PE/VC-backed IPOs as more expensive, in contrast with popular perception.
- Successful structures provide liquidity
When considering a structure for an IPO, investors recommend a high free float (38%) and listing on main markets (28%), reflecting their desire for liquidity.