The rapid recovery of the stock market in recent months has encouraged a growing number of companies to press ahead with IPOs, as investors look to the future beyond the pandemic.
One key factor which affects the timing of IPOs is the level of market volatility. The banks and brokers who advise companies monitor this closely as a high level can make it hard to interest the big institutional investors, who are the key to a successful listing, in buying shares in a new company when they already have their hands full watching their existing holdings.
The CBoe Volatility Index, known as VIX, is a widely watched metric as it shows expectations for volatility in the S&P 500 index in the US. When it falls to 20 or below, it signifies that the market is relatively calm and IPOs have a better chance of success. The index has fallen to that level twice in recent weeks so it’s no surprise to see several IPOs being launched.
Another key factor is valuation, which is the price that company owners can achieve for their shares in the business. They generally have a minimum level they’re willing to accept, but as the market rises it can be easier to achieve that although it varies considerably from one sector to another. Some value stocks in the market are currently trading at relatively low valuations which makes it hard for a similar company to achieve an acceptable price in an IPO. However, companies which have something unique to offer investors, and can already demonstrate some good growth, will always get attention if their valuation hopes are realistic.
In February greetings card company Moonpig completed a very successful £490m IPO which attracted a lot of demand from investors. The timing was a big factor for the company as its revenues have grown sharply due to the lockdown and the fact that many of its high street rivals have been forced to close. Such was the level of demand that the company increased the number of shares offered during the marketing period and then priced the deal at the top of the proposed price range. Even then the shares rose a further 28% on the first day of trading before falling back slightly.
Moonpig’s success has led other companies to launch IPOs recently, including food delivery group Deliveroo which is raising around £1bn. The company has also benefited from the lockdowns associated with the pandemic and recorded strong revenue growth as consumers have been forced to order takeaway from restaurants rather than sit in. It remains loss-making but the deal could value it at $10bn. The listing will actually be under the name Roofoods, which is the company’s legal name, and the offer includes a structure which will lead to the company’s founder and CEO receiving a different class of shares with extra voting powers.
Another highly significant IPO recently was the €2.3bn deal by Vodafone’s Vantage Towers business in Frankfurt. Vantage owns 82,000 towers across 10 countries in Europe and is looking to grow that number in the coming years. Vodafone sold a 19% stake in the IPO, valuing Vantage at around €12bn, with the deal priced in the middle of the range suggested to investors. It was one of the largest IPOs in Europe so far this year and could well lead to other major mobile groups, such as Deutsche Telekom, following suit with their own mast networks.
Such is the level of IPO activity and demand from investors that this could end up being the busiest first quarter ever seen in the UK, according to Bloomberg.
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