Surf’s still up for Australian IPO market following record 2014: Deloitte
12 March 2015: With $26 billion in equity listed through 74 floats, 2014 was a banner year for Australian initial public offerings (IPOs). According to Deloitte’s Surf’s up: 2015 IPO report, last year’s value total exceeded raisings for the previous three years combined as public listings made a comeback.
The report, prepared in collaboration with M&A intelligence provider Mergermarket, explores recent Australian IPO activity and presents an outlook for the year ahead. It explores the increasing complexities of structuring an IPO, the move away from a market dominated by resources companies, and private equity exits through the capital market.
Deloitte Corporate Finance partner, and Head of Transaction Services, Ian Turner said 2014 was clearly a strong one for public listings.
“Conditions remain largely the same for 2015, and the early signs are strongly positive with IPOs continuing to outperform the S&P/ASX 200 index in the first two months of the year. However, 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,” he said.
Report highlights include:
- Average 2014 year-end IPO returns of 17% which significantly outperformed the S&P/ASX 200
- Healthcare and financial services accounted for 59% of all listings
- Energy and resources IPOs declined, accounting for 14% of all IPOs in 2014, compared to 30% in 2013
- Private equity achieved 17 exits valued at $11.5 billion, double that of 2013.
“We continue to see a very healthy pipeline of IPOs building for the remainder of the year, particularly for growth stocks in the technology and financial services sectors, although the success of these will ultimately be dictated by the quality of the assets,” Turner said.
“Even though the interim reporting season hasn’t shot the lights out, the market indices are nearing levels last seen in 2008 and, based on Deloitte Access Economics macroeconomic analysis, there are few signs that prices are exaggerated.
“Activity will continue to be fuelled by low interest rates, a lower Australian dollar, strength in global equity markets, a willing queue of business owners keen to monetise their investments or pursue further expansion via listing, and a build-up of demand from institutions and superannuation funds.
“The depth and liquidity of the Australian market also make it an attractive listing destination for international companies, with growing interest from a number of Asian businesses. In terms of value, equity raised on the ASX was over five times that raised on the Singapore exchange in 2014.”
The report also highlights the point that companies have historically performed better when listing in a rough market when they were ready, rather than in a strong market when they were not, and discusses the factors that are critical to a successful float including hygiene, motivation and innovation.
“The legal and commercial requirements involved in an IPO are becoming increasingly complex, so management really needs to be ready to proceed and, post listing, needs to really appreciate the importance of quickly adjusting to operating as a publicly listed company,” Turner said.
“Other emerging themes include innovations in the way IPOs are structured and distributed, the rising number of private equity-backed IPOs, dual listings, exit and escrow arrangements, and the pressure to perform in a competitive IPO environment.”
“The commercial drivers of an IPO will always be paramount, but the tax and accounting opportunities and risks also cannot be ignored given their impact on the value proposition of an IPO.”
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