Family-owned SMEs fuel local IPO growth

Family-owned businesses grappling with succession planning are among the companies driving growth in the number of local initial public offerings, according to data published this week by Ernst & Young.

Gary Nicholson, transaction support leader for EY in Oceania, told SmartCompany while the window for floats of industrial stocks during the past 12 months has largely been dominated by private equity-backed companies, the number of privately owned family businesses looking to go public is on the rise, led by successful floats from the likes of Beacon Lighting and Bellamy’s Organic.

According to EY’s report into global IPO trends for the third quarter of 2014, Australian IPOs raised $US3.3 billion ($A3.75b) in the third quarter, contributing to a year-to-date tally of $US8.5 billion.

Globally, EY says the IPO market is on track to record its strongest result since 2010, with $US186.6 billion raised so far this year.

Nicholson says EY has been expecting the resurgence of IPOs from family-owned businesses for some time.

“There are a significant number of privately owned companies in Australia with shareholders over the age of 60 who are looking for the right opportunity to realise their investments,” Nicholson says.

“Some attempted to go public in 2007-08 but they didn’t get the transaction away. They then faced reasonably tough economic conditions … but we’re now seeing them come to market.”

While EY has not singled out any family-owned companies in particular, hair removal company Nad’s has confirmed its plans, as outlined by owner Sue Ismiel to SmartCompany, to launch an IPO in the next two years and News Corp reports today Victorian builder Simons is preparing for a potential float in November.

Nicholson says there are a number of benefits to going public for a family-owned business.

“There’s the immediate dollars they can receive from realising some of their investment today, but it also sets up an avenue for further realising their investment over time,” says Nicholson, who says most shareholders choose to retain some stake in their business following an IPO before selling it down over time.

“From the business perspective, it also gives the company more profile and can help with sales. And employees can develop a great sense of corporate pride by working for a listed company.”

While Nicholson says the health, aged care, technology and financial services sectors have shown the most IPO action this year, the standout feature of companies that successfully go public is they “have an exciting story to tell”.

“Really any business that has demonstrated that it has had good earnings growth through tough conditions, has a niche market or something that’s interesting or exciting about its market,” he says.

And for SMEs looking to grow but not interested in an IPO, Nicholson says conditions for mergers and acquisitions are also improving.

“We’re seeing a lot of large corporates look more proactively at their capital and move to carve off non-core business,” he says.

“So for privately owned companies that want to go grow, there’s an opportunity to look at their competitors or businesses that may align with their market position.”