IPO rush near an end

Closing the door on the last term of this government this week, David Cameron sounded the starting gun for a hectic five weeks of election campaigning. So, the window of IPO opportunity has started to close as UK companies scramble to float well before polling day.

So far this year, 27 companies have hit the market, just beating the 26 IPOs in the same period last year, according to data from the London Stock Exchange. From 1 January to 27 March 2015, 18 were main market flotations and nine listings were on AIM. Last year, it was 15 on AIM and 11 full listings.

After the collapse in oil prices, it's little surprise oil companies have shied away from raising cash through the markets. Last year Hurricane Energy, Mosman Oil and Gas (MSMN) and Gulf Marine Services (GMS) raised a combined £197.9 million, thanks largely to the latter's £178 million fundraise. One of the most popular sectors in 2014 was General Retail, with online fashion retailer boohoo.com, Pets at Home and Poundland among the high profile IPOs.

The non-equity investment instruments sector has seen the most floats this year, with listings including Vertu Capital (VCBC), Challenger Acquisitions (CHAL) and AIM-tiddler Highlands Natural Resources (HNR), an oil focused company.

"From a retail perspective, it has been the busiest it has ever been ... and there are still more to come over the next few weeks," explains head of derivatives at Interactive Investor Mike McCudden. "We expect some more activity over the next couple of weeks, but then we expect it to completely dry up as the markets get a bit jumpy or even hit the doldrums pre-election."

So, companies haven't completely missed the boat yet, "but they are running out of time," warns McCudden.

Although there have been more IPOs this year, the amount companies have raised has fallen far short. Thanks to Auto Trader Group's (AUTO) bumper IPO raising £1.4 billion at the end of March, the primary markets have raised £3.4 billion so far this year, which averages at £126.2 million per trade. Stripping out the impact from Auto Trader, the average trade was £74.9 million. Wizz Air Holdings (WIZZ) was the second most popular, raising £308.9 million.

Last year was crowned as the most successful for IPOs since 2007, and it's easy to see why. In the first quarter of last year, a whopping £4.89 billion was raised by companies coming to market, averaging at £188.1 million per trade. This year is unlikely to give 2014 a run for its money.

Sustaining last year's momentum was improbable, but the fall in value is more likely down to smaller companies wanting to jump on the IPO bandwagon. The impressive Auto Trader IPO, however, shows there is still appetite for big flotations.

According to LSE, over 80% of this year's IPOs are trading above their float price and 15% are underperforming. IronRidge (IRR) has lost over 40% of its value in less than two months. Gate Ventures (GATE), however, a small investment company focused on the media industry, has been the stand out performer in the year so far. It rocketed from a 10p float price to 178p at one stage, although the shareholder list and transactions since flotation have raised eyebrows.

Interestingly, McCudden notes the positive reaction to bonds coming to market in the run up to ISA season, with a number closing early.

With interest rates staying at rock bottom for the foreseeable future, companies may find debt looks more attractive than going to market for cash. As shareholders own the company, management have to seriously consider paying dividends or returning money to shareholders to keep them sweet, or they will look elsewhere for income. This isn't always an attractive prospect against regular coupon payments and tax relief.

For those who don't jump on the IPO train, McCudden reckons companies will start eyeing up flotation prospects again in September, but warns volumes will not be the same. However, investors do have the highly-anticipated Centre Parks and Countrywide IPOs to look forward to, which could bring the market back with a bang in September if they aren't rushed through before.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.