UK IPO market walks a fine line in 2016

Transcription

1 UK IPO market walks a fine line in 2016 IPO Eye An overview of the London Stock Exchange listings in Q2 2016

2 UK IPO highlights 2Q16 YTD (January June 2016) 1 Volume and value London Main Market 11 deals (39% decrease on 2Q15 YTD) London AIM 22 deals (10% increase on 2Q15 YTD) London Main Market GBP 1.9b (58% decrease on 2Q15 YTD) London AIM GBP 735b (78% increase on 2Q15 YTD) Key trends Commentary IPO activity should pick up in 2017 following the resolution of political uncertainty due to the EU referendum. Investor appetite remains keen for IPOs of companies that are well run and well managed with a strong growth story. Many companies are choosing to remain private for longer than in recent years, giving businesses longer to mature before attempting an IPO. The slow start to 2016 in the UK continued through the second quarter with total capital raised down 50% compared to this point last year. Despite the lower level of activity, we have seen well-valued businesses choosing to list and delivering strong aftermarket performance. This demonstrates that investor confidence remains for the right deals. Although the UK market has been constrained by political uncertainty, sentiment is strong within the investment community and the market should recover quickly and strongly once the uncertainty has subsided. Scott McCubbin EY UK and Ireland IPO Leader Financial sponsors continue to drive UK IPO market Three sectors trending 21% of UK IPOs PE and VC accounted for 21% of UK IPOs (7 deals) 54% of proceeds (GBP 1.4b) Technology 5 deals (GBP 261m) Financials 4 deals (GBP 878m) Retail 4 deals (GBP 269m) IPO pricing and performance London Main Market 2 Alternative Investment Market 2 Equity indices % first-day average return +11.2% first-day average return FTSE % +7.4% increase in offer price vs. 30 June % increase in offer price vs. 30 June 2016 FTSE % GBP 360.0m median post-ipo market cap GBP 48.3m median post-ipo market cap FTSE AIM ALL SHARE -3.7% Cross-border activity in 2Q16 YTD 4 Top three IPOs in 2Q16 by capital raised Italy, US and Malaysia had one deal each raising GBP 26.8m altogether on London AIM. Israel and Philippines had one deal each, raising GBP 5.4m altogether on London Main Market. Forterra PLC raised GBP 128m (UK, Materials) Motorpoint Group PLC raised GBP 100m (UK, Retail) Time Out Group Ltd. raised GBP 90m (UK, Media and entertainment) 1. 2Q16 YTD (January-June 2016) IPO activity is based on priced IPOs as of 30 June. 2. Pricing and performance is based on 11 IPOs on London Main Market and 22 IPOs on AIM that have started trading by 30 June. Data as of 1 July. 3. Year-to-date returns of equity indices as of 30 June There were five IPO cross-border Eye An IPOs overview on London of Main the and London AIM in 2Q16 Stock YTD. Exchange listings in Q2 2016

3 Market overview UK IPO activity likely to slide to a near standstill in the next 12 months following a slow 2016 so far The subdued levels of IPO activity seen this year are expected to continue into 2017 bringing the UK IPO market to a near standstill, following the UK s decision to leave the EU in the recent referendum. The London IPO market had already seen subdued levels of activity as the concerns over the EU referendum built up during the second quarter of Following the slightly unexpected result in favour of exiting the EU, this prompted significant falls in the value of the UK equity markets and a sudden depreciation of the British pound. In the second quarter of 2016 there were a total of 18 IPOs four on the Main Market and 14 on AIM raising 803.6mn. Compared with Q2 2015, deal numbers in Q were the same, but capital raised fell by 65%. AIM outperformed the main market in both volume of IPOs and capital raised in a quarter for the first time since Of the 18 listings this quarter, three were PE-backed IPOs (Forterra PLC, Joules Group PLC and Morses Club PLC) accounting for 49% of the total capital raised. The limited activity in Q was reflected by the absence of larger deals just five IPOs in the quarter raised more than 100mn with no one sector standing out. The largest new listing was Forterra PLC, a construction materials producer, which raised 126mn in April buoyed by the recent expansion in the UK housebuilding market. The PE-backed firm has become the second largest brick manufacturer listed on the Main Market after Ibstock, which debuted in London in Q Similarly, the resurgence in the UK car industry led to the flotation of car retailer Motorpoint Group PLC, the second largest IPO this quarter, which raised 100mn in May. Motorpoint has made the most of the growth in the sector, which has also seen the entrance to the London Main Market last year by three other businesses in the industry: online car marketplace Autotrader Group, British Car Auctions owner BCA Marketplace PLC and car dealer Marshall Motor Holdings. Main market 4 floats raised 229.7mn in Q2. The largest was by brick manufacturer Forterra, showing the continued strength of listings in the construction sector. AIM 14 AIM admissions raised 573.9mn in Q2. Hotel Chocolat becomes the second largest AIM IPO of Global IPO activity picked up in Q with a total of 246 IPOs raising US$29.6bn. This represents a 29% rise in volume and a 120% increase in total capital raised compared with Q1 2016, which had been by far the weakest first quarter since However, even after this quarter s improvements, IPO activity at the mid-year point remains significantly lower than the same period last year. For the first six months of 2016 (Q YTD), there were 437 IPOs raising a total of US$43.0bn, a decrease of 38% and 61% respectively on the same period in Despite a slow Q1 2016, global IPO activity in Q YTD still exceed that of the first half of 2013 (which saw the lowest six-month activity since 2009). IPO Eye An overview of the London Stock Exchange listings in Q

4 Market listings New Issues Main market Date of admission Company PE backed Country of incorporation Region/s of domicile Sector 13-Apr-16 Bluebird Merchant Ventures Ltd United Kingdom Philipines Industrial Metals & Mining 26-Apr-16 Forterra PLC X United Kingdom United Kingdom Construction & Materials 10-May-16 Toople PLC United Kingdom United Kingdom Technology Hardware & Equipment 18-May-16 Motorpoint Group PLC Israel United Kingdom General Retailers New Issues AIM Date of admission Company PE backed Country of incorporation Region/s of domicile Sector 15-Apr-16 Osirium Technologies PLC United Kingdom United Kingdom Software & Computer Services 05-May-16 Morses Club PLC X United Kingdom United Kingdom Financial Services 06-May-16 Midwich Group PLC United Kingdom United Kingdom Support Services 10-May-16 Hotel Chocolat Group PLC United Kingdom United Kingdom Food Producers 12-May-16 Green & Smart Holdings PLC Malaysia Malaysia Electricity 18-May-16 Oncimmune Holdings PLC United Kingdom United Kingdom Pharmaceuticals & Biotechnology 26-May-16 Joules Group PLC X United Kingdom United Kingdom General Retailers 27-May-16 Directa Plus PLC Italy Italy Chemicals 03-Jun-16 Accrol Group Holdings PLC United Kingdom United Kingdom Household Goods & Home Construction 06-Jun-16 Mereo Biopharma Group Limited United Kingdom United Kingdom Pharmaceuticals & Biotechnology 14-Jun-16 Time Out Group PLC United Kingdom United Kingdom Media 15-Jun-16 Draper Esprit PLC United Kingdom United Kingdom Financial Services 15-Jun-16 MKANGO RESOURCES LTD Malawi Malawi Mining 21-Jun-16 Comptoir Group PLC United Kingdom United Kingdom Travel & Leisure What constitutes an IPO? Not all new admissions, as listed by the London Stock Exchange, are defined as IPOs for the purposes of the commentary throughout this report. Our definition excludes secondaries, re-admissions, investment funds, transfers from AIM to Main (and vice-versa) and introductions where no money is being raised, or shares placed with new investors. 3 IPO Eye An overview of the London Stock Exchange listings in Q2 2016

5 Market cap. on admission ( mn) Funds raised ( mn) Placing price (p) Closing price (after first day of trading) Closing price (at QTR end) % change in price Market cap. on admission ( mn) Funds raised ( mn) Placing price (p) Closing price (after first day of trading) Closing price (at QTR end) % change in price IPO Eye An overview of the London Stock Exchange listings in Q

6 In this quarter Since February, when the UK Government set the date for the EU referendum, there has been a notable reduction in the number of IPOs. Companies chose to postpone their flotation plans until the referendum result was known to ensure they had greater clarity about the future. The now greater levels of uncertainty created by the announcement of the EU referendum result is stalling the new listings market. However it is widely accepted that London s Main Market and AIM will after a period of inactivity regain its position as one of the major listing destinations. The strong pipeline for IPOs which has now become dormant, will now be focused on those businesses assessing the outcome of the political situation which has either delayed or cancelled their plans to IPO. We are expecting a number of these businesses to either be sold or seek investment capital from other sources. Despite the reduction in the number of IPOs in Q overall, it seems to be the case that investors are prepared to analyse each stock on its merits and so the specific characteristics of individual companies appear to determine their success rather than general investor sentiment. In London Main Market and AIM, companies in the technology, energy, financials and real estate sectors have proved to be attractive, mirroring previous quarters. Main market We saw 4 floats raising a total of 229mn in Q2. Car retailer Motorpoint Group PLC raised 100mn. Motorpoint sold 50.0 million existing shares at pence per share, raising 100.0mn for its selling shareholders. Shares in the company pushed higher on their debut, up to pence, or around 7.4%. Motorpoint s market capitalisation upon admission was around 200.0mn. Motorpoint operates from 10 retail sites in the UK, along with a national call-centre to deal with online enquiries. It also operates the Auction4Cars.com businessto-business online auction platform. IPO Main market: historical performance 10,000 9, Fund raise m No. of IPOs 8, , Fund raise m 6,000 5,000 4,000 3,000 2,000 1, No. of IPOs 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q IPO Eye An overview of the London Stock Exchange listings in Q2 2016

7 Telecommunications firm Toople PLC raised 2.0mn. Based on the placing price of 8p, Toople s market capitalisation is 8.mn. Masonry products manufacturer focused solely on the UK market Forterra PLC priced their float at 180 pence per share, giving it a market capitalisation of 360mn. In 2015, it delivered earnings before interest, taxation, depreciation and amortisation of 71.0mn on revenue of 290.0mn. Bluebird Merchant Ventures, a Philippines-focused resource company which owns an interest in a gold project in the Philippines, issued 30.3 million shares in its placing at 5.75 pence per share, raising around 1.7mn. Its shares were sharply lower on their first day, however, down to 4.5p, off 22%. AIM There were 14 AIM admissions raising 573.9mn in Q2. The number of ordinary shares in issue immediately after admission will be 96,000,000, giving the Company a market capitalisation of 48.0mn at the placing price of 50 pence per ordinary share. Draper Esprit, a venture capital investor with a focus on the technology and digital sectors, raised 79.0mn with the issue of a total of 26.2 million shares at pence per share. Of the funds raised, 74.0mn has been raised for the company and 5.0mn for selling shareholders. Draper Esprit will use the funds raised to provide development and expansion capital for companies in its portfolio. Mkango Resources Ltd issued 30.3 million shares at 3.3 pence per share to raise 1.0mn, which will be put towards progressing the company s Songwe Hill rare earths project in Malawi. Lebanese and Eastern Mediterranean restaurants operator Comptoir Group PLC raised 16.0mn (gross), of which 8.0mn was raised by the Company to expand the number of restaurants operated by the Company and 8.0mn was raised for selling shareholders. IPO AIM market: historical performance 1, Fund raise m Fund raise m 1,200 1, No. of IPOs No. of IPOs 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q IPO Eye An overview of the London Stock Exchange listings in Q

8 In this quarter Media company Time Out Group PLC raised 90mn in its initial public offering, giving it a market capitalisation on admission of 195mn. Time Out expected to receive 58mn from the IPO, after taking into account the repayment of shareholder debt and costs of raising the new funds. It will use the funds raised to back its growth plans, as well as to invest in its digital, e-commerce and markets businesses. Tissue converter Accrol Group Holdings PLC raised 63.5mn in the placing of 63.5 million shares at 100 pence per share. Its market capitalisation on admission was 93mn. Accrol said plans to use the proceeds to repay all of its shareholder loan notes and to refinance its existing debt. UK-based biopharmaceutical company Mereo Biopharma PLC s raised 14.8mn from its float on London s junior market, including 11.4mn via a share float at pence and a 3.5mn convertible loan from Novartis AG, the Swiss drugmaker. Its market capitalisation upon admission was around 142.0mn. Graphene-based products supplier Directa Plus PLC raised 12.8mn from the placing of 17.0 million shares at pence per share. At that price, its market capitalisation was 33.2mn. Retailer Joules Group raised 77.5mn in total from its initial public offering, 11.5mn of which will go to the company and be used to pay down debt, with the rest going to selling shareholders. The company sold a total of 41.3 million existing shares and 7.2 million new shares at pence per share to raise the funds. Upon admission, its market capitalisation was 140.0mn with 87.5 million shares in issue. FTSE Indices: Q to Q FTSE 100 FTSE 250 FTSE All-Share FTSE AIM All-Share Source: S&P Capital IQ 7 IPO Eye An overview of the London Stock Exchange listings in Q2 2016

9 Oncimmune Holdings PLC, an early cancer detection technology company, raised 11.0mn through the issue of shares at pence per share. Its market capitalisation upon admission was around 66.3mn. Oncimmune intends to use proceeds from the float to continue to develop its products, focused on auto-antibody tests which it said have the potential to detect cancer up to four years earlier than other methods, and can be applied to a very wide range of solid tumour types. Renewable energy company Green & Smart Holdings PLC which generates power from biogas captured through the treatment of the effluent produced by palm oil mills during processing, issued 44.4 million shares at 9.00 pence per share to raise 4.0mn in its initial public offering. Its market capitalisation upon admission was 24.9 mn. Chocolatier and retailer Hotel Chocolat Group PLC raised 55.5mn in its IPO. Based on the placing price of 148 pence, Hotel Chocolat s market capitalisation was 167mn. Audio-visual and document services distributor Midwich Group PLC raised around 75.2mn from its float, with the funds going to pay down debt and to its selling shareholders Its market capitalisation upon admission was 165.3mn, making it the second largest AIM floats of the year so far behind student accommodation developer Watkin Jones PLC at 255.0mn. Morses Club PLC, the doorstep lender with 200,000 customers in the UK, floated with a value of 140mn by market capitalisation. Its initial public offering was priced at 108 pence per share. Morses pretax profit increased by 29% to 16.8mn in the financial year ended February 27. The company intends to distribute the majority of adjusted earnings to shareholders in the form of dividend payments. Cyber security software company Osirium Technologies PLC issued 5.7 million shares at pence per share, giving it a market capitalisation of 16.2mn upon admission. Osirium intends to use the proceeds to help accelerate its growth in the cybersecurity market, by appointing additional staff to support its sales and marketing, investing in continued research and development, and providing additional working capital. Aftermarket performance Before the results of the EU referendum Companies that have come to market in Q had been performing well with the newly listed stocks on the London Main Market trading on average 22% above offer price, with only 4 out of 11 stocks trading below their offer price. As well as the new listings on London AIM are trading on average 16% above their offer price, with 3 out of 23 stocks trading below their offer price. However since the results of the EU referendum have been announced we have seen an overall decline in the performance of all shares on the London Markets, meaning that all 4 Main Market listings are below their list price with an average decline of 15%. AIM has been further protected reflecting its focus on UK based investors as only 4 stocks are trading below and there has been an overall rise in value of 15% across all newly listed stocks. Four of the eighteen IPOs in London in Q were crossborder, including Italian firm Directa Plus srl the strongest performer of the quarter currently trading at 104% above list price. Volatility In the build up to the EU referendum the markets remained stable as a number of polls had indicated a remain vote would succeed. On the announcement of the official result of a leave vote the markets went into an instant decline, losing up to 10% of their value. However since the initial decreases we have seen a steady improvement of the overall markets to the levels trading at before the EU referendum. The volatility though is likely to remain over the next 6-12 months as the political implications of the leave result are delivered. It will not be until there is a widely supported process that the markets will be in a stable environment. IPO Eye An overview of the London Stock Exchange listings in Q

10 Looking forward In the short term, IPO activity can be expected to be at a standstill, with the only potential listings being those focused on smaller companies with UK-generated revenues, which do not have to contend with international trade issues. Investor confidence in larger Main Market listings is likely to remain subdued until the political situation has been clearly laid out. Companies will also have to adapt to the probable change in the regulatory environment created by the exit from the EU. As equity markets stabilize, and looking ahead to late 2017, IPO activity is expected to increase as companies, which delayed a 2016 listing because of the pre-vote uncertainty, return to the market. The weaker pound may also improve overseas investors appetite for UK IPOs. The pipeline does, however, remain active so we anticipate a flurry of IPO activity toward the end of the year moving into the first quarter of Raising capital is likely to be more difficult in this environment. IPO activity was already slow across the UK due to a wide range of economic and political uncertainties. Following the result of the EU referendum we expect UK IPO activity to slide further to a near-standstill in the next 12 months as investors absorb and process the changes to the UK economic landscape. One area of increased activity however could be from US and EU private equity funds looking to acquire assets in the UK, particularly if there is an impact on business valuations and a lower pound. Companies will want to see clear signs of certainty and long term planning if London s Main Market and AIM are to remain major listing destinations. If these conditions are not in place soon, there is a risk that some companies may start exploring alternative markets like the US. Scott McCubbin EY IPO Leader UK&I 9 IPO Eye An overview of the London Stock Exchange listings in Q2 2016

11 IPO specialist team For more information contact our international specialists or alternatively speak to your local EY adviser. Scott McCubbin IPO Leader Tel: smccubbin@uk.ey.com Richard Harding Partner, UK North Tel: rharding@uk.ey.com Dom McAra Executive Director, UK Midlands Tel: dmcara@uk.ey.com David Buckley Partner, UK North Tel: dbuckley1@uk.ey.com Steve Collins Director, Americas Tel: scollins@uk.ey.com Marcus Bailey Executive Director, Middle East and Africa Tel: mbailey2@uk.ey.com Cary Wilson Partner, Ireland Tel: cwilson7@uk.ey.com Aoife Warren Director, Financial Position and Prospects Tel: awarren@uk.ey.com Richard Hall Partner, UK London Tel: rhall2@uk.ey.com Chris Locke Partner, EMEIA Financial Services Tel: clocke@uk.ey.com Nadeem Khan Director, India Tel: nkhan1@uk.ey.com Timothy Pinkstone Director, Russia and CIS Tel: tpinkstone@uk.ey.com Ian Kelly Director, Ireland Tel: ikelly@uk.ey.com Sean Callaghan Partner, Capital Markets Tel: scallaghan@uk.ey.com Neil Glover Business Development Director, UK London Tel: nglover@uk.ey.com Please visit for more information on how we can help you or your business. IPO Eye An overview of the London Stock Exchange listings in Q

12 Relevant programmes EY Global IPO Center of Excellence Our Global IPO Center of Excellence is a virtual hub which provides access to tools and knowledge for every step of the journey from finding out more about what going public means to considering capital raising options and addressing post-ipo risks. It provides access to all our IPO knowledge, tools, thought leadership and contacts from around the world in one easy-to-use source. IPO Retreat May 2017 Looking to float in the next months? Our IPO Retreat helps CEOs and CFOs contemplating an IPO on one of the London markets. It gives unparalleled advice from key advisors and guest speakers who have been through the process, and provides invaluable networking opportunities. The IPO Retreat offers an invaluable opportunity to find out whether an IPO is the right growth option for your business. To find out more, contact: Eirini Vogiatzi, evogiatzi@uk.ey.com 11 IPO Eye An overview of the London Stock Exchange listings in Q2 2016

13 How well rehearsed are you for the public stage? 2016 Ernst & Young LLP. All Rights Reserved. ED EY s IPO services have helped more companies grow from private to public than any other organisation. ey.com/uk/ipo #BetterQuestions IPO Eye An overview of the London Stock Exchange listings in Q

14 Notes 13 IPO Eye An overview of the London Stock Exchange listings in Q2 2016

15 Notes IPO Eye An overview of the London Stock Exchange listings in Q

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