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IPOs bounce back from COVID slump
Australia has followed the US in bouncing back with new sharemarket listings after a hefty slump during much of the first half of the calendar year, at least in terms of the number of initial public offerings (IPOs). In the absence of any mega listings, Australia is still unlikely to break any records in terms of total dollar value of IPOs, but according to one fund manager, OC Funds Management, the concentration of intended IPOs in the small-cap space was the greatest he had seen in his 20 years as a small-cap manager.
Rob Frost, OC’s head of investments, said this week (September 29) that he had seen more than 20 prospective IPOs, some as part of a formalised IPO process and others at a more preliminary non-deal roadshow stage. “One broker that we know of has a pipeline of up to 18 IPOs to bring to market over the balance of the calendar year,” he said. According to the ASX, which tends to reflect IPOs which are more advanced in their planning, there are currently 13 actively seeking to list in the near term, 10 of which are planned for October. Eight of them are in the minerals and energy sectors. To put that in perspective, there were only 12 new listings in the first six months of this year, with the COVID-19 shock and subsequent market volatility and economic uncertainty having the major impact. This compares with 23 new listings in the first half of 2019, according to HLB Mann Judd’s half-yearly ‘IPOWatch Australia’. The five-year average is 34 for first-half numbers.
Marcus Ohm, a partner in HLB Mann Judd, said in his most recent report to clients: “During the June quarter, only three listings took place with the majority of IPOs and fund-raising occurring in the first quarter. Around $87.5 million was raised in the first three months of the year, in contrast to $44.5 million in the second quarter. The funds raised were soft compared to the previous year’s $823 million or 2018’s $2.5 billion.”
More pronounced in its recovery is the US market. The US is headed for the best IPO market since 2014 and perhaps even beating the record of more than US$110 billion raised in 1999. Up until last week (September 28) the calendar year has so far seen 138 IPOs with a total value of US$49.2 billion. This beats the annual total value for each of the past five years, although fewer in number than each of the past four years. In 2014, in a generally bullish equities market, US IPOs totalled 275, worth US$85.3 billion. Apart from the US and Australia, the other major global markets were historically subdued during the past three months as that segment of the equities markets started to emerge from the lows of the first quarter of the calendar year, according to PWC’s ‘Global IPO Watch’.
OC Funds Management held an investor briefing last month, during which Frost said: “The opportunity to be heavily engaged early in the IPO process gives OC an opportunity to meet with key management, understand the business model and the growth strategy of the company prior to a more formalised roadshow presentation, where we delve into the financial details. At this earlier stage we offer feedback on whether it is the type of business that, subject to valuation, we might be interested in becoming a shareholder in.”
Not all proposed IPOs will make it to an ASX listing. “We kiss a lot of frogs”, Frost said. “But we have already seen some quality businesses and the IPO process offers an opportunity to invest in companies that haven’t yet been efficiently priced by the broader market. Therefore, if we do our job well, we can add alpha for our clients by investing in IPOs which subsequently come onto the ASX at a premium.”
