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PRINT THIS PAGE UK IPOs: trading company entrants at five-year high30/08/2006. Source: KPMG.
Research by KPMG’s Capital Markets Group on the UK’s main Initial Public Offering market shows a strong upturn in trading company activity for the first quarter of 2006. So far this year seven trading companies joined the Official List to raise combined funds of £2,792 million. This compares with just two trading company admissions over the same period last year. It is also the highest first quarter activity level since 2000 when eight trading companies raised £524 million.
The seven trading companies to join the Main Market this quarter were Lotte Shopping (£1,586m); Comstar (£564m); Trader Media East (£316m); Qinetiq (£150m); Rightmove (£77m); Scott Wilson (£69m) and Optos (£30m). Additionally during the quarter, eight investment trusts/VCTs joined the Main Market to raise a combined £183 million.
David Simpson, corporate finance partner, KPMG’s Capital Markets Group, comments: “This is great news for the market which has seen a dearth of large company IPOs over recent years. It demonstrates that appetite remains high for quality businesses with a sound track record.”
Over the last year there has also been a return to larger fund-raisings by Main Market debutants with 15 trading company IPOs raising over £100m each in 2005 compared with 11 in the IPO boom year of 2000. In 2006 to date, four of the seven trading company entrants raised over £100m each showing that the appetite for larger listings is set to continue.
Have these larger IPOs been a success? Of the 16 trading companies who joined the main UK market in 2004 and 2005 to raise over £100m each, 15 are recording gains from IPO to date. Admiral Group is the best performing stock at 129 percent above its issue price, followed by Eircom (+116%) and Dignity (+107%). As a group they have outperformed the market with an average rise of 50 percent compared with an equivalent figure for the market of 26 percent[1].
David Simpson comments: “This is good news for the new issues investor. £1,000 invested in each of these IPO £100m+ fund-raisings over the last two years would now be worth an average of £1,500 compared to only £1,260 if invested in the market as a whole.”
Meanwhile the UK’s Alternative Investment Market (AIM) remains active with an increase in foreign company IPOs. This quarter 68 IPOs raised a total of £1,793 million. This includes 17 overseas entrants. Over the same period last year 93 IPOs, including 14 overseas companies, raised £524 million[2]. Many of last year’s first quarter IPOs were cash shells racing to beat the deadline set by the London Stock Exchange.
Tony Fry, transactions services partner, KPMG’s Capital Markets Group, comments: “AIM’s position as the market of choice for smaller domestic and international corporates is unrivalled. Its pre-eminence owes much to the liquidity and depth of the market in London and the flexibility afforded by a lighter regulatory touch along with certain tax advantages.”
Tony Fry continues: “Foreign companies are attracted to London by the high quality, cost effective regulatory environment. The trend for overseas entrants is also driven by the lack of an equivalent junior market elsewhere. We are currently receiving an enquiry a day from the US. If you are looking to raise US$20-$100m, neither NASDAQ nor the New York Stock Exchange is the right place. It will be interesting to see if recent moves to open new junior markets in Germany, France and The Netherlands will bring competition into this equity space.”
Looking ahead, the pipeline of new entrants remains positive. The biggest potential floats (by market capitalisation) this year include: Standard Life (£4-6bn); Experian (£4bn); Debenhams (£3bn); United Biscuits (£2bn); Springer Science (£1.4bn); CMC Group (£500m-1bn); African Arabian (£550m) and KazmunaiGas (£550m). AIM also has a healthy queue of candidates which include more on-line gaming companies such as Gameaccount and Jackpotjoy.com[3].
David Simpson concludes: “We have witnessed an increasing flow of larger IPOs on the UK Main Market and that pipeline looks set to continue in 2006. However, there is a push-and-pull effect operating between the public markets and private equity particularly in relation to the bigger deals. Demand from private equity houses for high quality assets has resulted in many companies leaving the stock market and we have also seen a rising number of secondary, tertiary and even fourth round buy-outs. The question is how much longer can private equity continue to ‘pass the parcel’? Sooner or later some of these assets will emerge as a trade sale or IPO exit which should expand the listings pipeline further and bring a new supply of quality companies to the London markets.”
KPMG’s Capital Markets Group provides a wide range of services required for transactions conducted on regulated capital markets. The Group draws together the best and most experienced IPO practitioners from across KPMG which includes specialist teams from Transaction Services, Corporate Finance, Tax, Assurance and other services.
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