At the TechCapMarkets event
From an IPO perspective, 2019 was a challenging year. Political uncertainty and the failure of high-profile initial public offerings (IPOs) such as WeWork created an environment of reduced risk appetite. In addition, there was a smaller pool of investors as a result of funds closing (such as Woodford) or consolidation in the sector (Premier Miton, for example).
However, 2020 seems to have started far more optimistically. Capital has been returned to investors through a number of takeovers that were announced in 2019 (Sanderson, Sophos, StatPro and Brady, for example). With the election out of the way, investors are looking to deploy their capital and, given the shrinking pool of listed companies, are more receptive to IPOs.
The remnants of 2019’s reduced risk appetite seen are still apparent, however, with investors prepared to back quality IPOs. Stifel’s Neil Shah highlights the key attributes investors are looking for:
- Scaled, later-stage businesses.
- A tangible total addressable market and durable moat.
- A proven organic growth record.
- Free cash-flow generation.
- Sensible valuations.
- Experienced management teams.
- Smaller IPOs tend to deliver the best performance.
- The UK is good at supporting buy-and-build models.
- Many of the top IPOs have succeeded at attracting US capital. For example, 39% of Blue Prism’s register is US-based institutions; being listed on AIM does not preclude attracting US institutions.
- Successful IPOs tend to have a single broker.
The last point is worth exploring. We have seen a number of disappointing IPOs brought to market through a syndicate of banks. This approach looks to leave little for the buyers of the IPO, extracting maximum value for the seller. The individual broker approach appears to have more accountability, with brokers risking their own reputations with investors to ensure IPOs are priced appropriately and issues dealt with correctly.
Success factors from a listing
Current Price/IPO %
Current MV (£m)
No of Acquisitions
Souce: Stifel, Edison Investment Research. Note: Prices as at 30 January 2020
Edison Group’s Neil Shah examined the important of research in a MiFID II world. The disconnect between investors and sell-side banks as a result of MiFID II does not mean companies cannot be successful in achieving post-IPO success. However, there has to be a clear strategy to achieve this. Key recommendations outlined included:
- Being clear about what the register should look like.
- Identifying long-term shareholders who support the company’s growth strategy.
- Understanding how a company can access these investors and whether they receive research on the company.
- Explaining the constraints of equity research, such as optionality in the business, to investors, thereby reducing volatility in the share price.
- Feedback from investors, in particular why the non-holders a company has met regularly have not converted into holders.
- Allocating sufficient internal resource to execute the IR strategy.
- Putting in place measures to allow for audit and impact of the IR strategy.
Since the introduction of MiFID II, at Edison we have evolved our content, platform and IR offering. Our approach is to use our analysts’ knowledge and expertise through different content types and a variety distribution channels to allow companies to be discovered and connect with the right investors globally.
Featured content: UK IPO reforms
Event: TechCapMarkets – The role of listed markets for technology companies
Date: 30 January 2020
Location: Edison’s London office
Hosted by: Edison Group
About: An essential event if you contemplated an IPO or have portfolio companies with the potential to go public. The complimentary workshops covered IPO conditions in the UK market, changes in the funding landscape, and how to ensure your position and strategy are accurately communicated to investors pre-IPO, the changing equity research market and the growing role of issuer sponsored research, as well as understanding how investors are consuming content.
For more information or to register your interest, email Violeta.