A huge rush of initial public offerings in the second quarter has left many investors struggling to digest the details of offers and make decisions, which has led to a lack of support for some floats, reporting by Data Room has found.
So far this year, the IPO market has raised a hefty $5.18bn, the largest amount for the same period since 2005, and more than five times the $900.5m raised in the first half of last year.
Australia’s IPO market started to pick up in the second half of 2013 after a five-year drought following the global financial crisis. In the year to date, 30 IPOs have been announced with 28 of them already priced, while the same period last year saw 22 IPOs announced and 19 of them priced, according to Bloomberg data.
“There is a bit of deal fatigue, with so many going on at the same time. It’s hard to digest all the information accurately and process,” says Rob Tucker, a fund manager at S.G. Hiscock & Co.
“Broadly speaking, the earlier ones get better support and the latter ones start to struggle,” he says.
New Zealand’s equipment-rental firm Hirepool shelved a $NZ262m ($A243.9m) IPO plan on Tuesday over concern from institutional investors that on-market support for the stock wouldn't be strong enough.
Australian private equity firm Next Capital decided to retain control as it could not get the price it wanted, a source close to the matter told Data Room. It is understood there was not enough support from local institutions for the company.
Another fund manager, Chris Kimber from Kimber Capital, says he has also experienced “fatigue” with the busy flow of deals.
“I have to be pretty convinced that it’s got to be exciting to get on board,” he says.
“All of a sudden if somebody gets a good price and lists well, then three other guys will say: maybe we should do it. Now welcome to the party, when they get there they find the market doesn’t want to pay them what they paid for their competitor six months ago,” he adds.
The lack of support also leads to a disappointing ASX performance for some stocks. Last Monday, fashion retailer and wholesaler PAS Group dropped 16 per cent from its listing price on the first day of trade. It’s now trading at $0.98, still 17 cents lower than the issue price. Hotel group Mantra also traded below its issue price of $1.80.
Fund managers feel they may have missed out on some good opportunities among the flood of deals. Mr Tucker says in the last month he only participated in Monash IVF, a fertility services company which debuts on the ASX tomorrow.
“We’ve actually let most of them pass. Not sure if it’s the right strategy, because some of them made good money,” he says.
It’s difficult for fund managers to discern good buying opportunities when they have been offered so many deals, says Mr Kimber.
Others argue it all depends on the quality of the company itself and the pricing, rather than whether the market is overcrowded.
John McClean, head of capital markets origination at Citi, says he has not seen any sign of so-called “deal fatigue” in the market. Citi is one of the joint lead managers for Asaleo Care, the toilet paper maker, which raised $656m in the year’s second biggest IPO and lists on Friday.
“We are not seeing any sign of that. I guess at the end of the day (for) the professional money managers the mandate is to look at investment opportunities, whether they are existing companies or new companies. I don’t anticipate any challenges with fatigue in the market place,” he said.
(Reporting by email@example.com
Editing by Victoria.Thieberger@businessspectator.com.au )