Challenging times ahead for IPO market: HLB Mann Judd

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Small cap companies* continued to provide the majority of initial public offering (IPO) activity in 2011, with an increased number listing during the year compared to the last three years, according to the latest HLB Mann Judd Small Cap IPO Watch report.

Small cap companies* continued to provide the majority of initial public offering (IPO) activity in 2011, with an increased number listing during the year compared to the last three years.

However the funds raised were down on previous years, according to the latest HLB Mann Judd Small Cap IPO Watch, released today (Tuesday 24 January 2012).

A total of 92 small cap companies listed over the 2011 year, up 10 percent on 2010 and 156 percent on 2009.  Small cap listings represented 88 percent of all IPOs during the year (2010: 88 percent, 2009: 92 percent, 2008: 93 percent).

However the total amount raised by small cap companies was down 17 percent on 2010, and the average level of funds raised by small caps was the lowest for five years, even at the height of the global financial crisis.  Small cap companies raised an average of just $6.84 million in 2011, compared to $9.07 million in 2010; $7.47 million in 2009; $7.45 million in 2008 and $8.75 million in 2007.

Mr Geoff Webster, author of the report and corporate finance director at HLB Mann Judd Melbourne, said that the decline in funds raised is a worrying sign of the ongoing challenges for listed companies and for corporate fund-raising generally.

“Coupled with the fact that 29 percent of 2011’s issues were undersubscribed, compared with 22 percent in 2010, it is concerning that the IPO market continues to struggle so badly.

“It is a further example of the difficulties businesses face in raising corporate finance and additional evidence of the challenging operating environment.

“The last quarter of 2011 was a particularly slow quarter for listing, especially in comparison with previous years when the December quarter has tended to see a rush of IPOs being completed before the end of the calendar year,” Mr Webster said.

Of the 92 small cap companies that listed in 2011, 58 percent came to market in the first half of 2011, whereas 70 percent of small cap companies that listed in 2010 listed in the second half of 2010.

The December quarter of 2011 had the least amount of activity, with 17 percent of the total small cap companies that listed in 2011, down from 50 percent in 2010 and 63percent in 2009.

Mr Webster said that one potentially positive sign is the increase in number of the very smallest companies undertaking IPOs.

“Of the small cap companies that listed, 44 percent were companies in the $0 to $10 million market capitalisation bracket

“This is the highest level in five years, and potentially indicates a return of confidence by smaller companies in going to market to raise capital.

“It might also indicate that IPOs are more attractive source of funding than alternatives in the current economic climate.”

Mr Webster added that companies with a market capitalisation of $25 million and less contributed 76 percent of total small cap listings, up from 61 percent in 2010 (2009: 58 percent, 2008: 70 percent, 2007: 74 percent).

He also said that the start of 2012 looks set to continue the lack-lustre performance of the December 2011 quarter.

“The pipeline of upcoming IPOs is down from the same time last year, with only 26 ASX applications lodged seeking to raise a combined $122.2 million, compared to 34 companies seeking $321 million in January 2011.  Significantly, only five companies have a proposed listing date.

“On the other hand, the Australian sharemarket has started 2012 positively, and if this continues it seems likely that more companies will consider an IPO later in the year,” Mr Webster said.

HLB Mann Judd is an Australasian association of independent accounting firms and business and financial advisers, with offices in Australia and New Zealand. 

 

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 * Small cap companies are defined as those with a market capitalisation of $100 million or less. All data excludes property trusts and investment companies.  

For more information please contact:

Geoff Webster – Phone: 03 9606 3888

24 January 2012