IPO fever appears to have overtaken the UK. To say that the dash for the London Stock Exchange is unseemly is an understatement. How can you maximise your chances of success? Start with a strategic adviser that will help to differentiated you from all the other companies chasing a listing.
Foxtons opened the floodgates
The enormously successful Foxtons float in September 2013 heralded the effective opening of the London Stock Exchange for new listings after a five year drought. The pent-up demand for listings has resulted in a tidal wave of new IPO opportunities.
With the exception of the occasional listing by a resources company from one of the former Soviet states – niche IPOs for a niche investor audience – an absence of investor confidence since the 2008 financial crisis had largely closed off the public markets to unquoted companies.
However, a seemingly insatiable appetite among investors for new issues has been encouraged by:
- a growing weight of positive economic news;
- the likelihood of low interest rates persisting across the developed world; and
- the resultant investor switch from bonds to equities in the pursuit of higher returns.
No Less Discerning
There is a risk that the runaway success of recent IPOs such as Foxtons and AO.com creates the impression among private company owners – foremost among them private equity investors – that the public markets are somehow being overtaken by an investment frenzy and will be less discerning about the businesses that they are prepared to back.
This is not the case.
While institutional investors’ memories may be short, they still remember the wave of over-priced IPOs of private equity-backed businesses that caught them out in 2006 and 2007, and are suitably wary.
Price is Driven by Supply and Demand – and there is suddenly a lot of supply
More importantly, with over 60 IPOs announced so far for 2014, they also have a lot to choose from.
Supply and demand will always prevail: while there may be a surfeit of capital looking for a home in equities, when investors are confronted with the luxury of choice they inevitably become more selective about the companies that they back. Or at least the price at which they are prepared to back them.
Differentiation is Key
The bar has therefore been raised for companies contemplating an IPO to articulate what makes them different, unique and special to the market – to both minimise the IPO discount and ensure a premium share price.
The first step in this process should be for the company to appoint a strategic adviser that will help to identify, develop and articulate these key messages to prospective IPO sponsors before selecting the one that will work hardest to achieve both the company’s and the shareholders’ objectives – and recognises that these do not always coincide.
Once the flotation is underway, this adviser should be shouldering the burden of project managing the IPO with the board while ensuring that the IPO sponsor works tirelessly to promote the IPO and secure a successfully priced IPO.
Alternatives to IPO
For successful private companies of scale, IPOs are back as a genuine exit option. Management shareholders have been routinely achieving a 50% sell-down of their shares at the point of listing compared to closer to 25% in the last IPO boom.
Having an adviser such as Livingstone offering you impartial expert advice on all of your exit alternatives – IPO, trade sale, MBO or refinancing – and then leading from the front to deliver you the best possible outcome, makes perfect sense to me, and has done so for the many clients for whom we have delivered this result!