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UK IPO recovery fragile but maintained in Q3

Many of the new entrants in 2004 represent exits by private equity funds, including Premier Foods, Admiral, Halfords, Umbro, Cambridge Silicon Radio and Dignity.

The UK’s main market saw 5 IPOs in the third quarter of the year raising a combined £878m, bringing the total for 2004 to date to twelve IPOs raising total funds of £2.1bn, according to figures released today by KPMG. This compares with just three companies in the equivalent quarters of 2003 which raised some £1.4bn, of which £1.2bn was attributable to Yell.

Three new entrants launched their IPOs in July and raised a total of £617m. They were E2V technologies (£76m) Premier Foods (£403m) and Virgin Mobile (£138m). The other two entrants were Admiral (£231m) and Paypoint (£30m), both of whom came to market at the end of September. In addition there were seven investment companies raising a total of £933m.

Many of the new entrants in 2004 represent exits by private equity funds, including Premier Foods, Admiral, Halfords, Umbro, Cambridge Silicon Radio and Dignity.

Neil Austin, Head of New Issues at KPMG Corporate Finance commented: “Although 2004 has been better than 2003 it is still a nervous market. Only quality companies are putting their heads over the parapet and even then there is often considerable debate about pricing, with issue prices very often being at a discount to valuations which were indicated initially. There is no reason to believe that this situation is going to change as we go through the rest of 2004 and into 2005”.

He added, “Many private equity houses have been active in exiting from investments but very often companies which might well have been suitable IPO candidates have been sold to other private equity houses in secondary buyouts. Such sales have a number of advantages for the vendor, not least a higher degree of certainty and a lower degree of publicity than would be the case with an IPO, coupled with the ability to sell 100% of their investment and, importantly, very often getting a higher price.”

"An acceptable level of debt in a quoted company is generally lower than the level which can be put in place as part of a private equity transaction. Provided the banks are willing to lend – which they are at present - private equity houses can use financial structuring to enable them to pay a higher price whilst still maintaining their desired target returns. Collectively, private equity houses have a huge amount of money to invest so there is intense competition for the kind of high quality businesses that would make attractive IPOs.”

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