Initial public offering (IPO) activity is back in fashion. The past two financial years have seen increasing amounts raised globally, helping push markets higher and providing a telling insight into investor sentiment.
Social media giant Twitter has announced its plans for an IPO. Private investors have valued it at more than $10 billion, which would make it the biggest IPO of the year and the biggest since Facebook’s $16 billion offering in 2012.
Recent times have seen cautious equity markets force IPOs on the back burner awaiting more favourable investor sentiment.
In the last financial year, a total of $1.9 billion was raised domestically in initial offerings. In comparison, the previous financial year only saw $77 million raised – a time when investors preferred investments they were familiar with in an uncertain economic time.
Domestically, investment bankers are feeling confident they can get IPOs away in what has been a previously cautious market. Recent weeks have brought three realistic IPO potentials to light.
Nine Entertainment is tipped to raise somewhere between $800 million and $1.2 billion when it floats before the end of this year. It has also emerged electronic retailer Dick Smith is set to list for more than $500 million, some five times the amount Woolworths sold it for less than 12 months ago. Healthscope is also pondering an IPO at some stage over the next six months.
Ironically, all these companies have been listed previously, before being taken private by their new owners, or in Dick Smith’s case, it was part of a listed entity. The three anticipated raisings will eclipse the total amount raised in initial offerings in the last financial year. IPOs are back.
Talks of a Nine and Dick Smith offering are significantly greater than the biggest offerings we have seen in recent times, excluding property trusts. The sheer size of these offerings, not even considering underlying investment fundamentals could pose problems. The last large domestic offering was QR National, where $4.05 billion worth of shares were allotted to investors.
This year, Virtus Health has been the best performer having gained 33.8 per cent since listing. Insurer Steadfast Group is not far behind, having gained 26.9 per cent.
Virtus, Steadfast and iSelect Limited have all been well received when it came to raising funds, but with the largest (Virtus) raising $346 million, they are far smaller than what returning market players are hoping to raise now.
It has been a long time since we had a steady stream of IPO talk. But overall this bodes well for the market and investor sentiment.