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UK IPO activity returns to 2000/01 levels in 200509/01/2006. Source: KPMG. 
 Another record year for AIM propels the UK's IPO numbers, says KPMG, with a healthy UK main market pipeline lined up for 2006. European IPO numbers were up by 40 per cent while the US dropped by 14 per cent.
UK market
Research out today by KPMG’s Corporate Finance practice, shows the UK’s Initial Public Offering (IPO) market continued its recovery during 2005 reaching activity levels last seen during the dot com era. There have been 307 new trading company entrants to the Main and Alternative Investment (AIM) markets so far this year raising combined funds of £8,533 million. This surpasses the 102 IPOs raising £7,893 million in 2001 and is close to the levels seen in 2000 when 251 IPOs raised total funds of £9,054 million.
Neil Austin, Head of New Issues at KPMG Corporate Finance, comments: “The record number of new entrants and the over 62 percent increase in money raised compared to last year, reflects a strong stock market and, critically, a good supply of suitable companies. However, the number of Main Market IPOs is much lower than in the record year of 2000 which reflects the acceptance of AIM as the natural market for smaller and many mid-cap companies. The number of overseas companies coming to London - 6 of the 20 main market IPOs and 66 of the 287 AIM entrants - shows both the ability of the market to raise capital for international groups and some reduction in the popularity of the US, largely due to the increased regulatory burden.”
Looking at how the figures break down for this year, on the Main Market 20 trading companies have raised £5,091 million. The largest of these included: PartyGaming (June - £907m); RHM (July - £677m); Kazakhmys in (October -£661m); Britvic (December -£469m) and Inmarsat (June - £368m). Meanwhile on AIM in 2005 to date, 287 trading companies have raised £3,442 million. This is up from 243 IPOs raising £2,376 million in 2004 making 2005 an all time high for activity on AIM. The biggest IPO on AIM this year occurred this month as Lancashire Holdings raised £517 million. However, a large proportion of companies joining AIM are small. In the last year only 46 out of the 287 new trading company entrants raised £20m or more each, with the remainder raising funds on average of under £5m each.(1)
Austin comments: “AIM has again this year smashed all previous records for both number of IPOs and total money raised. Its popularity is rising, with overseas as well as UK companies appreciating the lighter regulatory touch and tax advantages. Despite the number of larger IPOs, over 80 percent of the new entrants raised less than £5 million, highlighting the valuable role AIM is playing as a provider of development (and in some cases venture) capital for smaller emerging businesses.”
In addition to trading company activity, we have also seen a lot more investment trusts join the Main Market in 2005. A further £2,037 million has been raised on the Main Market so far this year from 46 investment trusts. This compares with 26 investment vehicle IPOs raising £1,313 million in 2004. AIM also saw its share of investment company activity with some of the biggest IPOs on the secondary market coming from property investment companies such as Dawnay Day Carpathian and Treveria (raising combined funds of £393m) and Raven Russia (raising £153 million).2
Austin comments: “The buoyant performance of collective investment vehicles mirrors the overall stock market performance. The emergence of AIM as a market for some of these investment companies is an interesting development – and has provided that market with some of its biggest IPOs this year.” The pipeline of new UK entrants still appears to be very promising. Companies anticipated to be seeking a listing in the first half of 2006 are: petroleum company, African Arabian; online trading group, CMC; life insurer, Standard Life; Kazakhstan energy supplier, KazmunaiGas; academic publisher, Springer Science; and restaurant group, Tragus Holdings. Other rumoured IPO candidates for 2006 include: United Biscuits; Debenhams; 3; Experian; Flybe and Ocado.
Austin comments: “At the start of this year we reported a very strong pipeline. Some companies such as Debenhams and Standard Life who were on the list at the beginning of 2005 are still there. Some have successfully made their market debuts such as Inmarsat and RHM whilst others have gone the sale route, for example, BP’s decision to sell Innovene to INEOS and Spirit’s acquisition by Punch Taverns. The companies leaving the list have, however, been replaced by new market aspirants such as African Arabian and Tragus. We are therefore entering the New Year with a strong pipeline and good investor appetite indicating further growth. We may well see 2000’s record of money raised broken in 2006.”
European market
The improving climate was reflected in IPO activity in Europe according to data from Dealogic. There were 454 IPOs on European exchanges raising Euro 52,137 million in 2005– a rise of 58 percent by value and 40 percent by number on 2004. After the UK, the most active European market this year by money raised was France, which saw a rise in activity from 14 IPOs raising Euro 6,230 million in 2004 to 16 IPOs raising Euro 12,962 million so far this year. Germany was in third place with 24 new entrants raising Euro 4,087 million compared with only 6 IPOs raising Euro 1,985 in 2004. Norway and Poland saw the highest number of IPOs after the UK with 30 and 32 new entrants respectively, although the total money raised was much lower at around Euro 1,700 million each.
Austin comments: “Due to the strength of AIM, the UK is way ahead of any other European country as far as the number of new market entrants is concerned. Most equivalent markets elsewhere in Europe are either virtually inactive or non-existent – the concept of a public quotation for a company raising a few million Euros does not exist to any great extent outside the UK. The French performance in terms of money raised is largely due to two privatisations, Gaz de France (Euro 4bn) and Electricite de France (Euro 6bn). The relatively high number of Norwegian and Polish IPOs shows that the appetite for smaller public equity offerings is not, however, solely restricted to the UK. Ignoring the eight oil and gas IPOs, the other 54 in Norway and Poland raised an average of Euro 40 million each and are spread over 20 sectors.”
Worldwide
Looking at the other key markets worldwide, the picture was more subdued as activity fell below 2004 levels with the exception of Hong Kong where a few sizeable deals bolstered the value of activity by 83 percent. Here activity was dominated by the US$7,584m listing of China Construction Bank in October and IPOs by China Shenhua Energy (June) and Link Real Estate Investment Trust (November) which each raised US$2,680m. The number of IPOs also rose significantly in India from 24 in 2004 to 52 so far this year although the amount of money raised is down by around 15 percent. The biggest dip in activity compared with 2004 was experienced in the US where 206 deals raising US$39 billion represented a 14 percent drop by deal number and 24 percent by money raised compared with 2004. (3)
Neil Austin comments: “The US performance may seem surprising given the strong IPO market in Europe. Some new entrants disappointed, however, and there has been no sign of a strong appetite for technology stocks in general. Indeed, there has been a lot more activity in the ‘take private’ market than the IPO market. It is too soon to draw firm conclusions but the increased US regulatory burden on quoted companies, coupled with the easy availability of debt and equity to private companies, may mean 2005 is indicative of future trends. The comparison between China and India is also illuminating. The latter’s stock market has continued to strengthen and the number of IPOs reflects this. China, on the other hand, has yet to see its stock market match its exceptional, and well-publicised, economic growth.”
(1) Source: LSE 13/12/2005.
(2) Note: Investment co. IPOs are not included in the analysis on page 1 (see also graphs in appendix) which looks only at
trading co activity.
(3) Source: Dealogic 13/12/2005
KPMG’s Corporate Finance practice provides a range of independent, investment banking services internationally and comprises more than 1,600 investment banking advisory professionals operating in 51 countries. KPMG’s Corporate Finance practice provides strategic advisory and deal management services covering: acquisitions and disposals; mergers and takeovers; valuations and fairness opinions; structured and leveraged financing; private equity strategies; initial and secondary public offerings; joint ventures and transaction alliances.
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