Australian IPO market
Open for growth
25 February 2016: In spite of a shaky start to 2016 for Australian and global markets, local IPOs are generally bucking the trend.
According to Deloitte’s 2016 IPO Report, produced in collaboration with M&A intelligence provider Mergermarket 2015 saw:
- 97 ASX IPO listings (up 33% over 2014), with a market capitalisation of $17.6 billion and capital raised in excess of $8.6 billion
- Market capitalisation down by 32% (2014 included Medibank Private, the third largest listing globally)
- Average gains of 18% weighted by market capitalisation
- Extended gains for 2014 listings, which closed the year 37% above their 2014 listing price.
According to Deloitte Corporate Finance partner and Head of Transaction Services Ian Turner: “Volatility in China and falling commodity prices have created an unsettling environment for equity investors, but IPOs remained stock market darlings in 2015, dominated by the technology and financial services sectors.
“Growth was the theme common to the majority of listings, and the numbers certainly tell the story. From the list of the top performing IPOs for the year, the majority are small and mid-cap growth stocks, largely in the technology and related sectors, which raised less than $50 million of capital.
“The level of sell-downs by private vendors, and them demonstrating their commitment to the post-listing growth of their businesses also affirms the growth story. The majority of non-private equity vendors are floating their businesses to raise capital for future growth and liquidity, rather than electing to realise their investment at IPO.
Tapan Verma, Deloitte Director of IPO Transaction Services said: “We have also analysed the performance of private equity-backed listings and confirmed that overall results are far more positive than market sentiment reflects. Had you invested in every private equity-backed float from the start of 2013, and including some of the poorer performers, you would today be sitting on a portfolio return of 48%. The results really speak for themselves.”
As for 2016, the outlook remains buoyant but subdued in comparison with the last two years.
“The window for listings certainly remains open, although market volatility is expected to impact IPO valuations in the short term and result in more trade sale and dual-track M&A processes for some IPO candidates,” Verma added.
“Technology and financial services, as well as consumer businesses that will benefit from lower Australian dollar and lower interest rates, will continue to drive IPO markets.”
Turner said Healthcare would also be attractive to investors.
“Despite being impacted by regulatory uncertainty and changes, the sector continues to demonstrate macro tailwinds. Transactional activity will remain strong, with the IPO exit route for quality assets facing strong competition from offshore strategic buyers,” he said.
“On the demand side, fund managers remain well equipped to invest in IPOs given superannuation structures. High net worth individuals with ample liquidity will also join the pool of investors searching for growth and quality assets.
“A key theme for 2016 will also be innovation. While hopeful tech start-ups looking to follow the path of Atlassian’s listing success will be a large component of this trend, companies that provide solutions for Australia’s aging population and those that can tap into Chinese consumer demand will also present value propositions for investors.”
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