Significant rise in number of new flotations on Europe's markets

The European IPO market is showing some recovery, according to recent figures, writes BARRY O'HALLORAN

AFTER TWO years in the doldrums, initial public offerings (IPOs) are showing signs of a revival.

Last week, PricewaterhouseCoopers (PWC) released its quarterly European IPO Watch, which shows that there were 77 new flotations on the Continent’s markets in the first quarter of 2010, with an offering value of almost €4.7 billion.

In the last three months of 2009, there were 55 listings which raised €5.25 billion. The firm observed that both quarters showed a dramatic improvement over the first three months of 2009, when Europe managed just 16 IPOs.

London led the European field on both value and volume in the first quarter, hosting 20 IPOs raising €2 billion, up from 14 and €951 million in the final three months of last year. Of these, the main market accounted for 11 listings and €1.8 billion, while the Alternative Investment Market (AIM) had eight.

London’s biggest flotations were mining company African Barrick Gold and financial services player, Horizon Acquisition Co. They raised a total of €1.1 billion between them.

Germany’s Deutsche Boerse – in Frankfurt – was in second place, with eight flotations raising €1.7 billion, a huge jump from the previous quarter, when it had just one IPO which raised €48 million.

Two listings, Kabel Deutschland Holding and industrial goods and services business Brenntag, were Frankfurt’s biggest flotations, raising €1.3 billion of the total.

John Casey, a partner in transaction services at PWC’s Dublin office, believes that there are grounds to be cautiously optimistic about the market, but he is not by any means predicting a boom.

In fact, there have been a few false starts in the market as well, but the bulk of IPOs got off the mark as planned, and raised substantial sums for the companies and their venture capital or private equity backers.

Casey points out that the key to the successful ones is that their price proved attractive. He says that it is still very much a buyers’ market out there, and the offering has to show it can deliver value.

Richard Day of stockbroking firm Arden Partners, who spoke at a seminar for venture capitalists and private equity firms organised by PWC this week, says that a number of sectors are delivering value to investors.

Of the FTSE 350 index companies, Day says that clean technology and renewable energy stocks have been top of the list with a price-earnings (p/e) multiple of around 25.

Marcus Stuttard, head of London’s AIM, says that there are a number of reasons behind the strong performance of clean technology and renewable energy.

It’s partly down to the fact that there are government and market supports for renewable energy in most European countries, and these stocks are also favoured by ethical investment funds and/or investors who want to put their money into firms they view as “ethical”.

However, he said that the fact that such stocks are delivering good value to investors is central to their attractiveness.

Technology/hardware and equipment came second, delivering multiples of around 20 to 25. Within this, Day says firms with products that are being applied to the provision of a specific service are doing best. Oil and gas services filled the third slot, with p/e multiples in the 15/20 category.

Either way, Day’s colleague at Arden, Tony Quirke, stresses that investors “need to see a compelling case, and they need to see that they can make money and get out”.

There are 31 Irish companies listed on AIM, many, though not all, have dual listings with Dublin. Quirke pointed out at the seminar that there is a “slight disadvantage” to simply taking a listing in Dublin and not in London.

He said that since the Republic joined the euro, investment houses have moved responsibility for Dublin-listed stocks to their European operations.

As a result, when it comes to selling the stock, brokers have to go to staff in “Paris or Milan or somewhere else, who might not know about it or who are not interested”, he explained, adding that this means there is an advantage to taking a dual listing.

Many of the Irish companies with a listing already have this, and a few of those who have floated over the last five years have tended to go to AIM first.

Stuttard points out that the market offers another advantage in that it allows companies to seek second and third rounds of funding through further issues.

“We have designed AIM to allow companies come back to the market cost effectively time and time again,” he said.

This has been responsible for much of the activity on the market over the last two to three years.