IPO deluge makes investors and managers cautious about buying in new companies
The abundance of IPOs on the stock market after the summer break is too much for investors; fund managers are considering whether it is worth it to invest in small companies even with the low volatility on the market.
The summer break is over, and European stock market listings are soaring. Now companies have the task of attracting investors in an ambience of new names coming in and high prices. There is expectation of IPOs increasing the amount amassed in Europe in the first nine months of the year to $55.5 billion, fourfold compared to a year earlier.
But the abundance of deals is a putting off factor for managers, and banks have apprehensions that some IPO clients will not get noticed, as investors are flooded with offers. The abundance of IPOs can make weaker companies move to the background and not meet receptiveness.
The keenest companies for making use of the current strong valuations are those established with private equity. Private equity-backed IPOs have totaled one-fifth of the general number so far this year. That is the highest share for a long time, at least since 1994. But their insistence on securing high price listings serves as a deterrent for new investors.
According to some investors, the advised strategy for targeting short-term US hedge funds for high payments has forced up valuation of companies, especially hitting the ones with a lesser international sprawl which underperform in markets after shorter-term funds are used. Examples include the UK retailer Poundland, and Corn Hem, a Swedish cable operator, trading below issue price, raising alarm in fund managers about similarly patterned future deals. Heaps of discounted deals raise a red flag with investment bankers.
In August, the BlackRock investment firm complained via email to bankers that newly-floating companies missed first public results forecasts, so subsequently their stock plummeted, quoting examples such as online travel agency eDreams and Applus, a Spanish testing business.
Albeit low volatility is a booster for listing prices, it is a deterrent for fund managers who find it hard to justify purchasing into new companies, when they already have difficulty with tested companies. Grappling is on the agenda for short-term investors too. Hedge funds which bet on equity capital markets have yielded just 0.8 percent returns for the year so far, compared to the 6.4 percent rise in the FTSEurofirst 300 Index.
Advisers’ forecasts are that selectivity of investors will soar, as they strive to improve returns in the remainder of the year, so they will be on the lookout for more competitive prices coming from stock market-bound companies.
