Challenging year for IPOs but positive signs ahead for 2010

The HLB Mann Judd 2009 IPO Watch suggests that while the IPO market was largely shut down last year, clever businesses are ensuring they are ready to list once the appetite for IPOs returns.

Author
Geoff Webster
Partner

Details

Location:	National
Division:	Corporate Finance
Publish Date:	19/01/2010

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The latest HLB Mann Judd IPO Watch shows that without the Myer Holding listing in November, the IPO market* for 2009 would have been the worst year in a decade.

Mr Geoff Webster, head of HLB Mann Judd Corporate Finance and author of the report, says that small cap companies again provided the vast majority of activity during 2009, contributing 92 percent of new listings to the market, a similar proportion to 2008 (93 percent).

“However, the number of small cap listings, and the total amounts they raised, were both down 43% on the prior year. The average amount of funds raised by small cap companies was held relatively constant at $7.47 million (2008: $7.45 million, 2007: $8.75 million).

“When large cap companies are also taken into account, the number of listings in 2009 remains well down compared to 2008 (39 compared to 68); however the total funds raised were significantly higher – $2.965 billion in 2009 compared to $0.788 billion, an increase of 276 percent.

“This is almost entirely due to Myer’s listing which, at $2.2 billion, accounted for 74 percent of the total funds raised during the year. The remaining 38 listings raised just $0.765 billion between them, down three percent on 2008 and 91 percent on 2007 levels.

“The global financial crisis brought fund-raising to a near standstill for the majority of the last two years. Fund raising started to pick up in the September quarter (thanks mainly to Carlsales.com), and jumped well beyond 2008 levels in the December quarter – due to the November listing of the year’s top two fund raisers: Myer (raising $2.2 billion) and Kathmandu ($332.5 million),” he said.

Mr Webster said that, in another positive sign for companies planning to list as well as for investors, the majority of 2009’s listings recorded both closing day, and year-end, gains on their issue price (59% of all listings recorded day 1 premiums, 56% of all companies recorded year end premiums). In comparison, just two small cap companies out of 63 managed to record year end price gains in 2008.

“Between them, the top ten performing companies returned a healthy average year end return of 81% (2008: -12%). Returns from the 10 best performing companies ranged from +275% to +50% (2008: +110% to -40%).

“There was also an improvement in the subscription rates amongst small cap issues as the year progressed, with the March quarter recording the poorest uptake of targeted funds at 93%, and the other quarters all reaching fundraising targets (Jun: 100%, Sep: 125%, Dec: 112% subscription rates).

Mr Webster said that the resurgence of listings in the last two months of 2009, and the IPOs already in the pipeline for 2010, suggests that companies are once again starting to see value in an IPO.

“Three large cap companies came to market in 2009 (compared to five in 2008), all in the last four months of the year. In addition, during the last month of 2009, 18 small cap companies listed raising an average of $6.31 million each. This strong activity at the close of the year suggests that many small companies, that had struggled to secure affordable financing, were patiently waiting for the market to show signs of rebounding before undertaking an IPO.

“With a number of smaller floats put off until early 2010 and the expectation of a greater numbers of private equity asset sales and government privatisations during 2010, we expect to see a sharp and pronounced turnaround in the IPO market this year,” Mr Webster said.

The HLB Mann Judd 2009 IPO Watch suggests that while the IPO market was largely shut down last year, clever businesses are ensuring they are ready to list once the appetite for IPOs returns. The report says that, compared to the companies that listed at the peak of the market, companies looking at an IPO this year will need to be better prepared in order to meet the greater scrutiny of more demanding investors.

* 36 small cap companies (defined as those with a market capitalisation of $100 million or less) and three larger companies. All data excludes property trusts and investment companies.