IPO Eye Q3 2013
IPO Eye survey: The road ahead?
This is the third year we’ve run our IPO Survey. which has allowed us to track the changing views of both the advisor and corporate executive community over what has been a pretty turbulent few years for the IPO market.
There seems to be very little difference over the last three years regarding the most important elements management teams feel they need to get right to successfully move into the public markets. The mantra is the same as in previous years: the right story, the right people, and preparation, preparation, preparation. .
That said, we were slightly surprised at not seeing a greater increase in the importance of good governance procedures, given the increased regulatory requirements introduced over the last year, as well as a number of high profile governance failures.
Advisors: Please rank the following elements from 1-5 in terms of completing a successful IPO in the current market
(1 = least important / 5 = most important)
An interesting divergence of views emerged between pre-IPO corporate executives and the advisor community when asked what they considered the greatest challenge to achieving a successful IPO.
The advisor community still feels that sellers approach the IPO with unrealistic valuation expectations which institutional investors struggle to meet.
Advisors: What do you currently see as the greatest challenge for a company to achieving a successful IPO?
Corporate executive respondents, however, see valuation expectation as much less of an issue, citing continued business performance as by far the biggest pre-IPO challenge.
Perhaps this is explained by the fact that many advisor respondents only get to see businesses after they have ‘pressed the IPO button’, by which point business performance challenges have been ironed out and valuation becomes a much more pressing issue. Or maybe management teams simply don’t view their valuations as ‘unrealistic’.
Executives: What do you currently see as the greatest challenge to a company acheiving a successful IPO?
Management teams’ change in attitude to the most pressing pre-IPO challenge is also interesting. In previous years, volatility and market appetite were serious concerns, but there seems to have been a significant change, with executives seeing the market is open for IPOs and their focus now is more centred on developing business performance to ensure they maximise this opportunity.
The response to the London Stock Exchange’s High Growth Segment (HGS) was generally positive, with 50% of corporate respondents saying they believed it would encourage a ‘significant number of companies’ to list in the UK. Only 25% of the Advisory community felt the same. This result may have been affected by the fact that over 25% of corporate respondents said they were considering using the High Growth Segment for their own listing, which shows it is having an impact.
Looking forward, it comes as little surprise that the natural resources sector is no longer seen as the sector that advisors think will provide the most IPOs over the next 18 months.
Technology and Media has already been prominent this year, particularly on AIM, and it is clear many advisors see there is still significant market appetite for businesses here.
The survey results show that the companies looking to come to market over the next 18 months come from a very broad cross-section of industries.
Advisors: Please rank sectors in relation to the amount of London IPO activity you expect to see over the next 18 months
(1 = least activity / 5 = most activity)
When asked how many IPOs they expect to see over the next 12 months, there were mixed views from advisors.
Surprisingly, the average of the number of predicted AIM IPOs was only 20, which, if accurate, would be the lowest we’ve seen since 2009. However, when asked their predictions for the Main Market (Premium), advisors were more bullish, with an average of 12 IPOs. If this is accurate, it will be the largest number of Premium listings since 2010.
Below are some remarks from survey participants regarding the IPO market.
“At the bigger end there is plenty of cash and demand (although still price conscious). At the smaller/mid end I believe there is good demand for quality businesses at the right price but the market can get log-jammed and arbitrarily close resulting in good companies being denied access for no other reason than indigestion. It may be worth looking at bringing back the queuing system although that too has its disadvantages. Generally quite bullish though.” Broker
“Seems to be strong pipeline and growing acceptance from the market of PE deals being worth investing in – the bad experiences of a few years ago seem to be consigned to history.” CFO
“Improving slowly but things are not yet out of the woods.” CFO