The latest bout of global share market volatility has rattled the float market. Only 21 companies have initial public offerings (IPO) in the market and most are for speculative mining explorers, Australian Securities Exchange data shows.
The sharp sell-off in Australian shares in the first half of March could not have come at a worse time. The second quarter is typically stronger than the first for floats as vendors wait until after the February interim profit-reporting season before launching IPOs.
The IPO market was building strong momentum at the start of 2011 as the rally in United States shares and firmer local shares bolstered conditions to raise equity capital.
However, civil unrest in parts of North Africa and the Middle East and the earthquake disaster and ensuing nuclear crisis in Japan have caused volatility to spike and global equity markets to tumble.
Last year, the Greek sovereign debt crisis emerged just as IPOs for several larger private-equity-owned assets were about to launch in the second quarter. The volatility forced several IPOs to be shelved.
The IPO market cannot take a trick. Expectations were high for a stronger IPO market in 2011 as investment bankers looked towards a mooted $5-billion float of Nine Entertainment Company. Market chatter suggested the near $8 billion raised through IPOs in 2010 could top $10 billion this year.
However, recent media reports suggest the Nine IPO is no certainty to launch this year. Seven Media Group, which had also been a rumoured multi-billion-dollar float, is being bought by West Australian Newspaper Holdings.
Cinema group Hoyts in March confirmed a possible IPO worth at least $500 million is on hold because of market uncertainty. The private-equity-owned company was considered more likely to be sold through a trade sale than an IPO, but it is still another setback for the struggling IPO market.
Also, the collapse of book retailer RedGroup could make it harder to sell retail assets through IPOs. Poor retail conditions generally will make it harder for private equity firms to achieve higher valuations for retail assets in the IPO market.
Trade sales are more likely. Media reports suggest fashion chain Witchery and lingerie retailer Bras N Things are exploring sales processes. At this stage, both assets look more likely to be sold via a trade sale to a larger company or another private equity firm, rather than by IPO.
It would not take much for the IPO market to improve if share markets recover lost ground. There is no shortage of assets waiting to be sold, but cashed-up larger companies might be able to pay higher prices for assets than the IPO market can.
The second quarter window for floats, which normally take at least three months to complete, is rapidly closing. If market conditions improve, the traditionally busy fourth quarter for IPOs could be strong.
After such a weak IPO market in recent years, nobody is holding their breath.
