Home' Forge : Vol 3 No 1 Contents FEATURE // 127
Owners looking to raise capital and
list their businesses on the Australian
sharemarket should watch this
year ’s initial public offerings market.
After a tough few years, it is on track
for a stronger performance in 2017 as
more floats emerge.
Several touted multibillion-dollar
floats could boost the value of IPOs,
and the return of mining IPOs –
mostly absent for the past three
years – will boost float volumes.
Although a record year is unlikely,
the outlook is the best that it has
been since 2014.
Of course, much depends on the
share market. The IPO floodgates
will open if the equities rally that
began in the fourth quarter of
2016 persists well into this year.
Conversely, a bear market or higher
global equities volatility would stop
the local IPO market in its tracks.
The IPO pipeline’s visibility is far
greater than it was 12 months ago,
when large floats were hard to identify.
Corporates such as Origin Energy
and Crown Resorts have signalled
their intention to divest assets by float
this year, and there is the possibility
of multibillion-dollar sales or
privatisations of energy assets.
The IPO market has not had a large
household-name float since the
$5.7 billion privatisation of
Medibank Private in 2014.
Blockbuster floats bring retail
investors back to the IPO market
and, if successful, pave the way for
other companies to launch offers.
A handful of large floats in 2017
would on their own eclipse last
year ’s IPO market. Forge analysis
shows that 89 floats raised
$8.3 billion in 2016 – a reasonable
effort for an IPO market that had to
digest the resource sector ’s nadir
in February, Britain’s proposed
exit from the European Union
(Brexit) in June, and Donald
Trump’s surprise US election win
The 2016 IPO market was up
slightly on the $7 billion raised in
2015, and well down on the record
$18.6 billion in 2014. Float volumes
were on par with last year ’s. Most
of the activity was in small and
mid-size floats as that part of the
In contrast, large offers and a sharp
increase in micro-cap offers will
characterise the 2017 IPO pipeline.
Or, put another way, there will be
more activity at the top and bottom
of the IPO market, and less in the
middle as small- and mid-cap stocks
underperform the broader market.
This year ’s IPO market must
overcome several headwinds.
The poor performance of several
smaller IPOs in 2016 is the main
one. High-profile floats, such as
property agent McGrath Holding
Company, disappointed last year.
Forge analysis shows that IPO
losers slightly outnumbered
winners in 2016, along with
a slightly negative median
return (compared to issue price)
compared to a 10 per cent return in
the S&P/ASX 200 index.
The poor aggregate performance of
small-cap floats, coupled with fewer
floats vended by private equity firms,
could slow interest in this year ’s IPO
market. But investors could overlook
this performance if the Australian
sharemarket’s rally continues this
year, more floats emerge and several
are priced to attract investors.
Early signs for the 2017 IPO
market are promising. More than
20 companies have so far sought
official admission to the ASX. Most
are tiny, and several could not
advise their listing dates – which is
often a sign that they are struggling
to raise enough funds.
But the IPO market is traditionally
quiet in the first quarter, as vendors
wait until the end of the February
reporting season before launching
offers for the second quarter. An
unusually busy January for floats
suggests that the IPO pipeline has
plenty of momentum.
As always, investors should
exercise caution with IPOs. Most
have no or limited history as listed
companies, and little operational
performance to go on. They suit
experienced investors who are
comfortable with higher risks,
particularly for smaller IPOs.
Many IPOs are best bought a year or
two after listing, when there is more
information as a listed entity, and after
early investors have left the share
register. But for all the challenges,
the IPO market remains an attractive
source of high-growth companies,
and a market that investors who seek
faster capital growth should follow.
Following are 10 IPO trends to
watch in 2017.
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