Initial public offerings (IPOs) have stalled due to fears over economic outlook and mispricing. This is an unexpected occurrence as markets have been trading at near record highs. Yet, recent troubled deals in the UK and Europe have hindered what should have been optimal conditions for lucrative fund raising. Companies hoping to raise billions of pounds have been left disorientated, forcing them to pull or reduce the price of their flotations.
UK banking software group Misys slashed the value of its proposed float by £1 billion, along with Pure Gym Group, TI Fluid Systems, OfficeFirst, Telxius, and GPM Petroleum, who have all been similarly affected. Furthermore, Biffa, the British waste company, was this week forced to cut its flotation price by a third to 180p per share. The severity of the situation was exemplified by Biffa’s owners investing a further £49 million into the company.
Although the IPO market is not entirely closed, the bar has been raised significantly. Richard Buxton, chief executive of Old Mutual Global Investors, told the Financial Times, “As investors, new deals need to offer a discount to stocks that are known, tested and have proven trading track records. This is especially the case if they are coming with more leveraged balance sheets.”
Therefore, investors argue that IPOs have not been well handled with many pointing to Misys as a recent example. The company has £1 billion of debt and offers little transparency compared to its rival public companies, leading Mr Buxton to claim: “Misys was originally valuing the business far too highly…Why should we sell our holdings in companies like Sage or Micro Focus, with managements we know with proven track records to pay a higher price for a business with management we don’t know?”. These stalling IPOs are not helped by the economic and political uncertainty surrounding the global landscape; namely, issues revolving around Brexit, the bitter presidential campaign in the US and concerns over the Chinese economy. Consequently, investors’ portfolios are particularly susceptible to risk in the current climate.