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Home > Blogs > Ian Fraser > IPO window slams shuts in “howling gale of fear”

IPO window slams shuts in “howling gale of fear”

Finance Blogger: Ian Fraser Ian Fraser

The flotations window that has been opened up since the bear market rally kicked in last March has been slammed shut as risk aversion stalks global financial markets. Institutional investors are concerned about the ending of quantitative easing and the uncertainties that have been caused by the sovereign debt crisis in the EU. Both have sparked stock market volatility and rendered the near-term outlook for some corporates somewhat cloudy.

The apparent closure of the initial public offering (IPO) window is bad news for private equity firms seeking to make “exits,” unlisted corporates seeking to raise capital at a time when reasonably priced bank credit remains hard to obtain, and for investment bankers who can earn high fees from underwriting flotations. The most recent casualty was the US-based travel company Travelport, whose float was scrapped at the last minute in early February, and Amadeus, the travel bookings organization, whose own float was hanging in the balance at the time of writing.

Tom Ahearne, European head of equity at Credit Suisse, believes these IPOs are the victims of fragile market sentiment. He told the Financial Times: “The fact that investors are reticent about stepping into a howling gale for fear of the apparent cold is completely understandable.”

According to Thomson Reuters, investment banks made more than $300m in fees from 82 IPOs in the first six weeks of 2010, including private-equity-owned floats. In the same period last year, banks earned just $5.5m in fees for advising on 14 IPOs. However, the boom seems to have petered out before it even got into top gear. Since mid-February 2010, if an investor has cash to invest, Aberdeen Asset Management claims that their preference is to put their cash into strengthening the balance sheets of existing shareholdings, for example through participating in things like rights issues, rather than committing to an “uncharted” IPO.

Some are putting a positive spin on things, saying the Travelport flotation was pulled because it was intrinsically flawed, rather than being symptomatic of a wider trend. Some investors have said they were put off by the triple-C rating on its debt, the company’s business model and have suggested its shares would have been overpriced at 220p each. Some have said the Travel firm would have had a great chance of getting away had it shares been priced at 170p to 180p.

Investors also expressed their jitteriness about IPOs at the recent SuperReturn conference in Berlin. According to Financial News, at that event John Singer, chairman of London-based private equity house Advent International, said: "I will be fascinated to see [how many of the planned] IPOs get through a tiny window. You would need every French window in the Palace of Versailles to get all the IPOs through. We are likely to see some stickiness in exits and some selectivity from investors."

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Tags: capital raising , flotations , fund management , IPOs , private equity , rights issues
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