Retailers’ appetite for IPOs boost UK listings, reveals EY
4 April 2014
- Excluding investment vehicles, Q1 saw 24 IPOs raising funds of £3.9bn – as good a start to the year as we have seen in the past 20 years
- Main and AIM markets saw 8 and 16 floats raising £2.7bn and £1.3bn
- Retail the dominant sector accounting for 60% of total funds raised
- Main market IPOs are trading at an average of 5% above their offering price
LONDON, 4 APRIL 2014: The London IPO market has had as strong a first quarter performance as any seen in the last 20 years, with 24 IPOs (Main Market and AIM) raising cumulative funds of £3.9bn, according to EY’s latest IPO Eye. The retail sector accounted for the lion’s share of activity, with eight IPOs raising cumulative funds of £2.4bn, accounting for 60% of total funds raised.
On the main market, there were eight IPOs over the first three months, raising total funds of £2.7bn, with five of these listings originating from the retail sector; McColl’s, AO World, Pets at Home, Poundland, and Russian based retailer Lenta.
David Vaughan, EY’s IPO leader for UK & Ireland, commented: “What we have seen over the last quarter is an improving economic landscape, consumers who are feeling increasingly confident and buoyant capital markets. These elements, coming together at the same time, are leading to a significant surge in retailers who are looking to take advantage of these favourable conditions.
“These IPOs have predominantly been low-cost retailers and/or those with a strong online presence and growth strategy. The drivers for this increase in retail IPO activity include the shift in consumer purchasing patterns towards online vendors and the increased demand for value-based retailers which has been established in the preceding challenging economic environment.”
The Alternative Investment Market (AIM) also had its strongest opening quarter in over 20 years, producing 16 floats raising funds of £1.3bn, eclipsing the corresponding quarter of last year which produced five admissions raising a paltry £20m in comparison. In a trend not dissimilar from the main market, retail was a strong player and included the admissions of online retailers Boohoo.com and Koovs, which successfully raised cumulative funds of over £300m.
Vaughan adds, “AIM continued the trend of producing a great diversity of admissions, above and beyond retail, with IPOs originating from fast-growth sectors such as life sciences and technology as well as oil and gas and manufacturing.”
There have been suggestions that the London IPO market is overheating due to a perceived ‘slowing down’ of aftermarket performance.
Vaughan comments, “While many of the recent IPOs haven’t achieved the aftermarket performance of the likes of Royal Mail, the main market IPOs this quarter are trading at an average of approximately 5% above their initial offering price. What we have seen this quarter is a more varied after market performance with a mix of modest gains and losses.”
“It’s also important to consider that those businesses coming to market this year are more confident of pricing and achieving a higher valuation than businesses which listed in 2013 and as a result, post float, are not experiencing such a significant kick in trading above their initial asking price.
“There is a fair degree of scepticism amongst fund managers who are still showing signs of caution as a result of being burnt from past investments. These investors are looking for strong cash generative businesses with a clear strategy for growth, and these types of businesses are coming to the fore at present.”
Sun continues to shine on IPOs
Vaughan concludes, “As strong as this quarter has been our pipeline suggests that the next quarter will continue the momentum. There are many businesses who have witnessed the London IPO market revival over the past 12 months and they are now looking to take advantage of these favourable market conditions. This appetite doesn’t show any immediate signs of slowing as capital continues to flow into UK equities.”
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