The market for new company listings in Australia is suffering its weakest period in half a decade, with investors taking a cautious view towards initial public offerings and several planned major floats being called off in favour of trade sales.
The value of new initial public offerings so far in 2017 is well below that of recent years, a trend that contrasts to stronger conditions overseas and weighs on revenue for investment banks.
The dearth of floats partly reflects investor caution, but is also the result of several mooted IPOs failing to materialise, illustrated by last week’s takeover of Origin Energy’s trade sale of Lattice Energy, which had been pencilled in as a likely IPO.
Alinta Energy’s float, which could have raised about $4 billion, was also scrapped in March after it was sold to a Hong Kong buyer. Zip Industries pulled its listing plan in May, while Wesfarmers canned the $1.5 billion Officeworks amid concerns over the threat to domestic retailers from the arrival of Amazon.
Experts also say investors are being cautious about putting their money into new listings, although the market is tipped to improve over the year ahead as more companies come to market.
“For quality companies, there continues to be investor interest but that’s tempered around price,” said Deloitte corporate finance partner Aaron Black.
Negative publicity following several floats last year had also dented the appetite in the market for IPOs, he said. “I think we are just in an environment where investors are being more cautious.”
Figures from Deloitte suggest IPO market activity by value is at the lowest level in about five years, with about $2.5 billion in capital raised across 72 listings.
Data from Thomson Reuters, which excludes the smallest deals, puts the amount raised through IPOs this year at $1.5 billion, also the smallest value in five years.
Co-head of equity capital markets for Australasia at UBS, Richard Sleijpen, said the softer IPO market conditions came after a strong few years between 2013 and 2016. “We’ve had strong supply, and the IPO market is cyclical, like any market,” he said.
A further challenge had been a shift in emphasis among some large investors towards large-cap stocks, rather than the smaller and mid-cap stocks that are more likely to be floated on the ASX.
“Last year money flowed out of small-cap stocks and into large cap companies, and that made IPO conditions a little more challenging during that period,” he said.
Despite the weaker year, Mr Sleijpen said the IPO pipeline was more promising.
Wealth management Netwealth is tipped to be floated in the coming months, while potential future IPOs could also include Latitude Financial Services, Red Rooster and Oporto’s owner, Craveable Brands, Property Exchange Australia, and the Commonwealth Bank’s Colonial First State Global Asset Management.
Mr Black also said the “fundamentals” in the market still supported listings, even if the recent softness had caused some potential vendors to delay their plans.
“There’s quite a good pipeline of companies that are looking to come to market, but when you see a subdued period, it does mean people shift out their intentions,” he said.
Australian Private Equity and Venture Capital Association chief executive Yasser El-Ansary said there would be a growing pipeline of private equity businesses coming to the public markets over the next three to five years.
But in the shorter term, he said uncertainty on the markets, including because of geopolitical risks, was weighing on activity.
“It’s not a surprise to see that there’s been a big slowdown,” Mr El-Ansary said.