IPO Eye. Retailers appetites for IPOs boost UK listings. An overview of Q1 2014

Transcription

1 IPO Eye An overview of Q Retailers appetites for IPOs boost UK listings EY s IPO Eye is a quarterly publication for those with a vested interest in Initial Public Offerings (IPOs) on the London Stock Market. IPO Eye provides data and analysis on new issues for both the Main Market and AIM. We identify market trends and provide insight for those companies looking to float in the future. If you have any feedback, please me at dvaughan@uk.ey.com David Vaughan IPO Leader EY The London IPO market has had as strong a first quarter performance as any seen in the last 20 years. The London IPO market has had as strong a first quarter performance as any seen in the last 20 years, with 24 IPOs (Main Market and AIM) raising cumulative funds of 3.9bn. The retail sector accounted for the lion s share of activity, with eight IPOs raising cumulative funds of 2.4bn, accounting for 60% of total funds raised. On the main market, there were seven premium listings over the first three months, raising total funds of 2.1bn, with four of these listings originating from the retail sector; McColl s, AO World, Pets at Home, and Poundland. The Alternative Investment Market (AIM) had its strongest opening quarter in over 20 years, producing 16 floats raising funds of 1.3bn: Main market 7 floats raised 2.1bn in Q1 vs. the four floats in the same quarter last year raising 1.2bn. AIM 16 AIM admissions raised 1.3bn, making it the strongest opening quarter in over 20 years, eclipsing the corresponding quarter of last year which produced five admissions raising only 20mn in comparison. GDRs this quarter saw the one GDR admission on the main market of Russian retailer Lenta which raised funds of 952mn(USD) in a similar performance to last year which saw one admission raising 850mn(USD). Globally we saw the IPO markets carry their strong form from last year into 2014, producing the best opening quarter we ve seen since 2011 in terms of the number of IPOs and capital raised. The US IPO market is booming with the number of deals up by 113% on the same quarter last year. With the reopening of mainland Chinese exchanges and a strong start to the year in Hong Kong marked by a number of mega deals, greater China led the way in global IPO activity producing 59 deals raising 10.4bn(USD). EMEIA maintained strong numbers on the back of last year s resurgence with retail issuers being the main drivers this quarter accounting for almost one third of all capital raised.

2 Market listings Table 1: New issues Main Market Date of admission Company PE Backed Country of incorporation Regions of domicile 25 Feb 14 McColl s Retail Group plc Y UK UK Retail 26 Feb 14 AO World plc N UK UK Retail 12 Mar 14 Pets at Home Group plc Y UK UK Retail 12 Mar 14 Poundland Y UK UK Retail 13 Mar 14 Circassia Pharmaceuticals plc N UK UK Pharmaceutical 14 Mar 14 Gulf Marine Services plc Y UK UAE Oil & Gas Services 28 Mar 14 Brit plc Y UK UK Insurance Table 2: GDRs Main Market Date of admission Company Table 4: Main to AIM Transfers PE Backed Date of admission Company PE Backed Country of incorporation Country of incorporation Regions of domicile 28 Feb 14 Lenta Ltd Y British Virgin Islands Russia/CIS Retail Table 3: New issues AIM Date of admission Company PE Backed Country of incorporation Regions of domicile 06 Jan 14 RM2 International S.A. Y Luxembourg Europe and USA Manufacturing 17 Jan 14 CityFibre Infrastructure Holdings plc N UK UK Telecommunications 04 Feb 14 Hurricane Energy plc N UK UK Oil & Gas 10 Feb 14 Manx Telecom plc Y UK UK Telecommunications 18 Feb 14 4d Pharma plc N UK UK Pharmaceutical 20 Feb 14 Atlantis Resources Limited Y Singapore Global Renewable Energy 27 Feb 14 DX plc N UK UK Logistics 10 Mar 14 Koovs plc N UK India Retail 14 Mar 14 Boohoo.com plc N UK UK Retail 19 Mar 14 Dalata Hotel Group plc Y Ireland Ireland and UK Hospitality 20 Mar 14 Mosman Oil and Gas Limited N Australia Australia and New Zealand Oil & Gas 21 Mar 14 XLMedia plc N UK Europe Digital Media 25 Mar 14 Xeros Technology Group plc N UK UK and North America Manufacturing 27 Mar 14 Horizon Discovery Group plc N UK UK Life sciences 28 Mar 14 Scholium Group plc N UK UK Retail 28 Mar 14 Venture Life Group Plc N UK Global Life sciences Regions of domicile 24 Mar 14 CA Sperati plc N UK UK Manufacturing 20 Jan 14 Vislink plc N UK Global Technology Sector Sector Sector Sector 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. 2 IPO Eye Q1 2014

3 Market cap. on admission ( mn) Funds raised ( mn) Placing Price (P) Closing price (after first day of trading) Closing price (at quarter end) % change in price % 1, % 1, % % % % % Market cap. on admission (USD) Funds raised (USD) Placing Price (USD) Closing price (after first day of trading) Closing price (at quarter end) % change in price 4, % Market cap. on admission ( mn) Funds raised ( mn) Placing Price (P) Closing price (after first day of trading) Closing price (at quarter 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 quarter end) % change in price 0.4 N/A N/A N/A N/A N/A 50 N/A N/A N/A N/A N/A IPO Eye Q

4 In this quarter There were seven premium listings this quarter raising 2.1bn of which four were retailers accounting for 70% of funds raised. On the back of last year s resurgence the London IPO market maintained its renewed vigour producing the strongest opening quarter we have seen for a long time. Main Market There were seven premium listings this quarter raising 2.1bn of which four were retailers accounting for 70% of funds raised. The convenience and newspaper retailer McColl s was the first out of the blocks managing to raise 133mn. The group intends to extend its portfolio to over 1,350 stores by the end of 2016 through a combination of conversions and acquisitions. The next day saw the float of online appliance retailer AO.com which raised 423mn with a chunky valuation of 1.2bn. The Bolton headquartered business has achieved a valuation which has raised some eyebrows in the market when compared to some of its other listed peers. However at quarter-end the share price is 10% up on IPO and it will no doubt be watched with some interest by analysts as it approaches its first set of results. March 12 saw the listing of Poundland and Pets at Home which saw differing performances in the aftermarket with respective closing figures of +27% and 2% on offering price as of quarter-end. Both businesses were of a similar valuation and some may argue that the positive territory that Poundland has entered is reflective of the higher demand that investors are currently showing towards value-based retailers. Somewhat against the odds, Russian hypermarket retailer Lenta managed to list its GDRs on February 26 against the backdrop of the Russia and Crimea crisis, successfully raising $952mn(USD). The share price has been resilient to date only closing the quarter 3% down on initial offering price. AIM The AIM market had a record breaking quarter producing 16 admissions raising 1.3bn, easily making it the strongest quarter we have seen in over 20 years on this fast-growth platform. AIM continued the trend of producing a great diversity of admissions with IPOs originating from fast-growth sectors such as life sciences and technology as well as oil and gas and manufacturing. In a trend not dissimilar from the main market, retail was a strong player and included the admissions of online retailers Boohoo.com and Koovs, which successfully raised cumulative funds of over 300mn. IPO Main Market-premium listings historical performance 8,000 7,000 6, , Fund raise mn 5,000 4,000 3,000 2,000 1, ,617 1,698 1, , , , Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q No. of IPOs Fund raise mn No. of IPOs 4 IPO Eye Q1 2014

5 Manx Telecom successfully raised 156mn this quarter in what was a fascinating listing process. The Isle of Man telecoms provider only made a final decision to go ahead with the flotation one week before the planned admission date as another potential buyer was lurking in the background. The CEO Mike Dee is confident that the rigour and transparency that comes with being a publicly listed company will drive Manx towards achieving its growth ambitions. Drivers for the increase in retail IPO activity include the shift in consumer purchasing patterns towards online vendors and the increased demand for value-based retailers. Why so many retail admissions this quarter? What has transpired over the past year has been an improving economic landscape, consumers who are feeling increasingly confident and buoyant capital markets. These elements, coming together at the same time, are leading to a significant surge in retailers who are looking to take advantage of these favourable conditions. The retail IPOs this quarter have predominantly been low-cost retailers and/or those with a strong online presence and growth strategy. The drivers for this increase in retail IPO activity include the shift in consumer purchasing patterns towards online vendors and the increased demand for value-based retailers which has been established in the preceding challenging economic environment. Somewhat against the odds, Russian hypermarket retailer Lenta managed to list its GDRs on February 26 against the backdrop of the Russia and Crimea crisis successfully raising $952mn(USD). IPO AIM Market historical performance Fund raise mn 1,400 1,200 1, , Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q No. of IPOs Fund raise mn No. of IPOs IPO Eye Q

6 Aftermarket performance: signs of overheating? The aftermarket performance of IPOs this quarter has been decent with stocks trading at an average of 6% above their initial placing price. However there have been suggestions that the London IPO market is overheating due to a perceived slowing down of aftermarket performance. Whilst many of the recent IPOs haven t achieved the aftermarket performance of the likes of Royal Mail, the main market IPOs this quarter are trading in positive territory above their initial offering price. This quarter has shown a more varied after market performance with a mix of modest gains and losses. It s also important to consider that those businesses coming to market this year are more confident of pricing and achieving a higher valuation than businesses which listed in 2013 and as a result, post float, are not experiencing such a significant kick in trading above their initial asking price. Volatility The FTSE indices followed a normal distribution of peaks and troughs this quarter partly attributable to a slowing in Chinese manufacturing forecasts and the Crimea crisis. The indices have held steady and have closed only a couple of points below their starting point with the exception of the FTSE 250 which closed a couple of points higher. FTSE Indices FTSE 100 FTSE 250 FTSE AIM FTSE all-share /01/ /01/ /01/ /01/ /01/ /02/ /02/ /02/ /02/ /03/ /03/ /03/2014 Source: S&P Capital IQ 6 IPO Eye Q1 2014

7 Looking forward Q was undoubtedly an exciting and extremely successful period for IPOs. Whilst there are plenty in the press that would have you believe that the London IPO market is overheated, that is not our view or indeed the view of most of the other ECM market participants with whom we work. It is undoubtedly a bull market but that is only unusual in the context of the last six years. Our view is that the IPO market is likely to remain buoyant certainly through 2014 and perhaps well into Q1 was a record quarter for money raised on both the Main and AIM market. This has come on the back of a six year period where the IPO market has (with a few notable exceptions) been closed. During this time there has been a significant pent up supply of good businesses awaiting the opportunity to IPO. This along with the large number of maturing Private Equity investments has led to a period of high IPO activity as those companies seek to take advantage of returning investor confidence. We believe there is still a fair degree of scepticism amongst investors who are still showing signs of caution as a result of being burnt from past investments. These investors are looking for strong cash generative businesses with a clear strategy for growth, and these types of businesses are coming to the fore at present. Getting the pricing right remains the most important factor in achieving a successful IPO. There will undoubtedly be some bumps along the way with businesses performing below investor expectation and as a result their share price being hit. However these should not overshadow the vast majority of businesses who will IPO successfully and will continue to provide those investors who backed them with significant returns. This outperformance of IPOs versus the wider market has certainly been the case over the last 12 months. We expect Q2 to be as busy, if not busier than Q1, with a continued wide variety of businesses from the UK and abroad raising capital on the London market. At the time of going to press Just Eat, the online takeaway service provider had just become the first company to join the London Stock Exchange s High Growth Segment (HGS) raising 360mn. The float is one of the largest technology listings to have taken place on the London market for some time. It is hoped that many other technology businesses follow in the footsteps of Just Eat in taking advantage of the HGS which enables companies to achieve a premium listing without having to float as much of their equity. Now that the IPO window has opened other businesses have started considering a public listing as a potential option and we have seen a significant group kicking off their preparations now for IPO in late 2014 early IPO Eye Q

8 Relevant programmes IPO Retreat May 2014 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. An IPO is not for everyone, but the Retreat offers an invaluable opportunity to find out whether it is the right growth option for your business. 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-touse source. To find out more, contact Drew Cordell dcordell@uk.ey.com, IPO Eye Q1 2014

9 IPO specialist team For more information contact our international specialists or alternatively speak to your local EY adviser. David Vaughan IPO Leader Tel: dvaughan@uk.ey.com Guy Carr UK IPO Director Tel: gcarr1@uk.ey.com Richard Harding Partner, UK North Tel: rharding@uk.ey.com Richard Hall Partner, London Tel: rhall2@uk.ey.com David Wilkinson Partner, UK South Tel: dwilkinson@uk.ey.com Neil Patey Partner, Scotland Tel: npatey@uk.ey.com Steve Collins Director, Americas Tel: scollins@uk.ey.com Nadeem Khan Director, India Tel: nkhan1@uk.ey.com Marcus Bailey Executive Director, Middle East and Africa Tel: mbailey2@uk.ey.com Timothy Pinkstone Director, Russia and CIS Tel: dpinkstone@uk.ey.com Cary Wilson Partner, Ireland Tel: cwilson7@uk.ey.com Ian Kelly Director, Ireland Tel: ikelly@uk.ey.com Colm Devine Partner, Financial Position and Prospects Tel: cdevine@uk.ey.com Please visit for more information on how we can help you or your business. IPO Eye Q

10 Notes 10 IPO Eye Q1 2014

11 IPO Eye Q

12 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. About EY s IPO services EY is a leader in helping to take companies public worldwide. With decades of experience, our global network is dedicated to serving market leaders and helping businesses evaluate the pros and cons of an IPO. We demystify the process by offering IPO readiness assessments, IPO preparation, project management and execution services, all of which help prepare you for life in the public spotlight. Our Global IPO Center of Excellence is a virtual hub which provides access to our IPO knowledge, tools, thought leadership and contacts from around the world in one easy-to-use source. Ernst & Young LLP The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London, SE1 2AF Ernst & Young LLP. Published in the UK. All Rights Reserved. ED indd (UK) 04/14. Artwork by Creative Services Group Design. In line with EY s commitment to minimise its impact on the environment, this document has been printed on paper with a high recycled content. Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material. ey.com/uk