For the past few years, there’s been little appetite on the part of investors – institutional or retail – for backing the debut of a company onto the Australian Securities Exchange, known in market lingo as its initial public offerings (IPOs).
This year, this state of affairs hasn’t been helped by a few false starts. There was a fair amount of speculation chicken company Ingham Enterprises would list this year, but instead it was bought out by private equity at the weekend. And among the companies that have braved the sharemarket, there have been some terrible high-profile outcomes, such as Facebook in America, which has fallen from a listing price of $38 to $28 (at worst it was $19 in August 2012).
But institutional investor sentiment is changing, according to new global research from accountancy giant Ernst & Young. The report, released yesterday, found institutional investors are increasingly willing to invest in IPO stock, and have been doing so at far higher rates over the past 12 months.
More than four in five (82%) of the 300 institutional investors surveyed – investment banks, super funds and other financial institutions – have invested in an IPO over the past 12 months – up from less than one in five (18%) when Ernst & Young did the same survey last year.
The data was global, but Ernst & Young Oceania transactions advisory leader, Graeme Browning, says this holds out in Australia as well. He says this is highly encouraging for companies looking to list in the next few months.
“For an IPO to be successful, you need both institutional and retail investors,” he tells LeadingCompany. “Many retail investors will watch to see whether an IPO is well-supported by institutional investors as part of their due diligence on whether to invest or not. Likewise, institutional investors like to know their stock is well-supported by retail investors. Both need each other, I suppose.”
One outcome of the dearth of IPOs in the past four or five years has been a build-up of companies keen to list that have been waiting for the market to thaw, Browning says.
“The interest is high – there’s a lot of talk about IPOs in the market, especially given equities have been so strong.”
These companies could now have a chance, given many analysts are predicting the market for IPOs in Australia will “open” from October this year.
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