Market loses its appetite for IPOs

New research from PricewaterhouseCoopers shows the number of floats plummeted in the first half of 2008

Thinking about floating your company on the Australian Stock Exchange in the next six months? Think again.

New research from PricewaterhouseCoopers shows the number of floats plummeted in the first half of 2008, with 21 IPOs complete or set to be completed by 30 June, and $334 million raided. In comparison, the same period last year produced 33 IPOs which raised $4.5 billion.

The data (which excludes listings in the resources sector, compliance listings and backdoor listings) shows that the dramatic fall is mainly due to a big drop in the number of listings by companies with a market capitalisation of $100 million or more.

Small companies were still willing to roll the dice – the number of listings by companies with market capitalisations under $100 million increased from 16 to 18 during the period, thanks to a spike in the number of companies floating in the renewable energy and clean-tech sector.

Unfortunately, these small companies did not fare very well after listing; their share prices have sunk by an average of 25%, which is broadly in line with the fall in the entire market.

PricewaterhouseCoopers corporate finance partner Greg Keys says investors are shunning floats in favour of less risky, more stable investments such as cash or fixed-interest securities.

His advice for any company considering a float?

Be prepared to delay your IPO, or consider a trade sale or private equity deal. “There is still a lot of private equity money around,” he says. And if you really want to proceed with a float, be aware the price you receive is likely to be lower than you might have expected 12 months ago. “Quality companies can always IPO, it’s just a question of price.”

Keys expects the IPO market will take six to 12 months to recover. He says float activity around December – historically the most popular month to float – will provide a better indication of whether investor appetite for IPOs has returned.

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