Last year was a “banner year” for Australian initial public offerings, with $26 billion equity listed through 74 floats, according to a snapshot of the IPO market released by Deloitte today.
This compares to 56 IPOs in 2013, which delivered equity of $11.9 billion.
Deloitte’s Surf’s up: 2015 IPO Report, produced in collaboration with Mergermarket, said the early signs for another strong year of Australian IPOs are positive, with stocks such as New Zealand personal jetpack company Martin Aircraft already lighting up the Australian Securities Exchange this year.
Seven companies have already floated on the ASX this year, returning 22.8% to investors as of the end of February, said Deloitte.
The market has already been buzzing over a potential float for SME accounting software provider MYOB, while Business Spectator reports high-performance sportswear brand 2XU is on course for an ASX debut later this year, potentially raising more than $400 million.
But Deloitte corporate finance partner Ian Turner said in the report the “under-performance of certain IPOs and re-pricing of others toward the back end of last year, does raise the question of whether the 2014 wave is sustainable”.
According to the research, 2014 year-end IPOs delivered an average return of 17%, significantly outperforming the S&P/ASX200 index, which delivered an overall return of just 1%.
In 2014, 42 IPOs had a market capitalisation exceeding $75 million, generating a combined market capitalisation of $24.9 billion. This compares to 27 IPOs with market capitalisations above $75 million in 2013, which generated a combined market cap of $10.9 billion.
Healthcare and financial services companies accounted for 59% of all listings in 2014, while energy and resources IPOs declined from 30% of all listings in 2013 to 14% of listings in 2014.
Private equity firms achieved 17 exits via IPOs in 2014, valued at $11.5 billion. This was double what was achieved in 2013.
Among the top floats last year were retailer Beacon Lighting, the share price for which rose 61% on its first day or trade and 127% by the end of the year, and baby food producer Bellamy’s Organic, which recorded a 48% price jump on its first day of trade and a 67% increase by December 31.
Speaking to SmartCompany this morning, Deloitte’s Ian Turner says the healthcare, technology and financial services sectors are likely to remain the key performers when it comes to IPOs in 2015, while energy and resources firms are “unlikely to time their run at the moment”.
“Technology is essentially a stalwart,” Turner says.
“Any company with some form of innovation is usually attractive.”
“Health has increased over the past couple of years and we see it increasing going forward. There’s also more activity in financial services.”
While Turner declined to name any particular companies that are expected to list this year, he said there are a number of companies in the financial services sector that have “displayed a significant level of growth and are looking to continue to grow”.
In the report, Deloitte said market timing is not the only consideration for companies considering a float.
“Our evidence shows that companies do better when listing in a rough market when they are ready than listing in a strong market when they are not ready,” said Deloitte.
Turner says there are two sides to that equation. On the one hand, investor appetite will determine the demand for IPOs or when the “IPO window” is open.
But on the supply side of the equation, is whether your company is actually ready to list. And being ready has two elements: going through the “rigorous” and “time-consuming” process of preparing for an IPO and then once the company is listed, having the correct governance process in place to make it a success.
“Being ready is often around the process,” Turner says.
“You only have one crack at this so you must ensure the organisation is in a position to put its best foot forward.”
But the process can become “rushed and scrambled” in the time between a company “pulling the trigger” for an IPO and the lodgement date.
Instead, Turner says it is the companies that strategically understand where they want to go and prepare for that strategy that are best placed.
“Be able to articulate your strategy and ensure the financials marry with the strategy,” Turner says.
“And being able to show where the growth is coming from, those would be the questions most people want answered.”