Will the play button be pressed on the IPO market after the summer?
April 15, 2016
The start to 2016 was a little like a game of musical statues as the IPO market opened in fits and starts. Global IPO proceeds barely touched the €12.5bn mark, the slowest start to a year since 2009 and UK IPO proceeds dropped 50%.
This is dismal reading and in stark contrast to where we were last year, when London had already welcomed its first €1bn+ IPO by the end of Q1 (Auto Trader raised £1.6bn last year). Only 12 months later and the market is awash with delayed timetables and depressed pricing expectations – you really had to have nerves of steel to price a deal this quarter.
But this does not mean all hope has gone. Bankers and lawyers and, indeed accountants, are not sitting with their feet up waiting for spring to finally arrive. Instead we are seeing more companies and selling shareholders still preparing for going public – however, this time they are more than ever venturing down a dual track process (deals where an issuer is exploring simultaneously an IPO and a trade sale).
What the dual track process really does is de-risk the chance of the deal not completing due to external factors, such as the risk of volatility in the public markets or political elections or referendums. The flip side to this is the added burden on management teams as they grapple with the sometimes competing asks of both processes and often constricted timetables. Some say a small price for de-risking.
So who is providing the hunger for investment opportunities which fuels this dual track process? It is cash rich corporates and private equity buyers alike. In relation to the latter group I think we have entered the next phase in the ‘PE life cycle’: a number of them exited a wave of investments which they had bought out pre or just after the crisis but this has slowed to a trickle as they are now looking at investment opportunities across Europe and indeed the UK.
How will the rest of the year pan out? I expect the play button will be pushed on the IPO market once the EU referendum anxiety has passed and things have settled – there are still a number of quite sizeable companies waiting to launch either an IPO or indeed a sale. In the M&A space, even though cross border deals were dealt a blow by recent US treasury announcements, raising questions on the viability of a number of mega inversions underway at the moment, buyers are still looking for strategic investments. So definitely a pause but not a stop.