‘Turbulent’ market conditions stymie IPO activity

Initial public offering (IPO) activity has been severely hampered by the combination of a fall in oil prices and the Covid-19 outbreak creating the most “turbulent” market conditions since the financial crisis in 2008, according to a new report out today.

Listings have come to an ‘abrupt’ halt, says Timmins. Picture: contributed.

EY’s latest IPO tracker, the EY IPO Eye, said factors such as more clarity around Brexit laid the foundations for a “promising” start to the new year for IPO activity in the UK.

The London Stock Exchange saw three flotations on the main market and two admissions to Aim, raising in total £615 million – equivalent to a 28 per cent increase on the entire proceeds of the first quarter of 2019. In March, IPO activity worldwide quickly tailed off in all markets.

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Mike Timmins, EY’s IPO leader in Scotland, said: “Listing activity has unsurprisingly come to an abrupt halt in 2020 after what was a promising start to the year. The combination of economic disruption caused by the significant fall in the oil price and the impact of Covid-19 has effectively closed the IPO markets to new issuers in [March which] is typically the busiest month of the quarter.

“Companies are now rightly focused on the safety of their people and the continuity of their business, putting any immediate IPO plans on the back-burner. Market activity, in the short term, will be focused on existing issuers shoring-up their liquidity and exploring other fundraising strategies to keep them afloat.

Recalibrate

“Right now, it is a case of battening down the hatches, re-cutting the book of business and recalibrating the mid and long-term strategy. Once a sense of normality returns to the market, the timing of which is uncertain at present, there is likely to be a strong appetite for growth, but the key issue will be hitting the market at the right time.”

By funds raised, the largest IPO to list on the main market in quarter one 2020 was Calisen, a private equity backed owner and manager of energy infrastructure assets, which raised £337m.

The largest admission on Aim in Q1 was another private equity backed business, Inspecs. The Bath-based eyewear designer, manufacturer and distributer raised funds of £94m.

Globally, 230 IPOs listed in the first quarter – an 11 per cent year-on-year increase – raising $28 billion (£23bn) in proceeds, which was nearly double the amount in the same period last year.

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Timmins added: “The impact of Covid-19, and other global factors such as dramatic fluctuations in oil prices, have had a pervasive impact on the IPO ecosystem in Q1 2020. We anticipate the effect on market volatility, equity indices and valuations to continue for the foreseeable future until the Covid-19 crisis and the economy stabilises.

“However, looking ahead, at this stage we expect to see a pick-up in UK IPO preparations in the second half of the year and indeed a potential scale-up in listings in the later months of the year, when compared to the same period in 2019. An increase in UK-wide activity is likely to drive a stronger appetite for Scottish businesses to push forward with plans to list.”

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