UK IPOs head for best year since crisis

On the 20 September, Mishcon de Reya published a briefing discussing the return of the IPO exit.

Please click here to view the briefing.

The article below was originally published by The Financial Times on the 22 September.

Growing confidence in the economy and support from US investors is turbocharging British initial public offerings, with stock market flotations heading for their best year since the financial crisis.

The value of UK-issued IPOs has already reached $7.16bn this year – more than eight times the amount raised by the same stage in 2012, according to Dealogic – even before the UK government presses ahead with the flotation of Royal Mail, which hopes to raise £1.2bn.

News of the rise comes as a majority of Britain’s fastest-growing companies said they were finding it easy to raise funds for the first time since 2009 in a further sign that the economy is improving.

A survey of 650 high-growth companies by ECI, a private equity firm, found 41 per cent said they would consider selling shares, up from 9 per cent a year ago. Some 54 per cent of those surveyed said they expected it to be “easy” or “very easy” to obtain growth finance over the next 12 months, up from 36 per cent in 2012.

The IPO market has recently seen a revival with Foxtons, the London-focused estate agent that floated last Friday, increasing 17 per cent on its debut.

Adam Young, head of global equity capital markets advisory at Rothschild, said owners of companies, including private equity groups, were attracted by the returns available via offerings, compared with trade sales.

“The value the stock market can deliver to sellers is competitive with mergers and acquisitions,” he said. “The current season feels good.”

The UK is also benefiting from US funds hoping to rebuild their exposure to European companies as concerns over the eurozone crisis recede, and seek better bargains than those available on Wall Street.

“Typically US investors now account for 30-40 per cent of investors in UK IPOs, and they too have plenty of cash,” Mr Young said.

Craig Coben, head of equity capital markets at Bank of America Merrill Lynch, said: “Big global funds are absolutely pivotal for IPOs – and they are rebuilding their weightings in Europe and the UK.”

However, David Ewing, managing partner of ECI, cautioned that uncertainty remained in the markets: “While a recovery is well and truly under way, it is still in its early phases.”

Meanwhile, Royal Mail has been given the cleanest bill of financial health of the world’s post or parcels companies, providing a boost to the government’s hopes for a successful flotation in the next few weeks. The British postal privatisation will test the depth of demand. But the shares are expected to be keenly priced, rather than to maximise return, because a failure would damage the UK’s coalition government.

Partly because of this optimism, market participants are confident the IPO market will remain robust for the rest of this year – though the final annual total will still be a long way short of the $24bn peak reached by UK-issued IPOs in 2006.

Copyright The Financial Times Limited 2013

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