The second half of 2015 has seen Australia’s equity capital markets bankers struggle to find a sweet spot in investor appetite. China’s stock market correction and Europe’s ongoing wobbles have cast a doubtful shadow over the pipeline of initial public offerings and several transactions have been repackaged or postponed until conditions improve.
IPO originators say price brackets are being adjusted on some deals while others are being restructured to make them more appealing. “Some transactions just haven’t worked in their original format and have been reconsidered or repackaged,” said Hugh Falcon, co-head of equity capital markets at Macquarie in Melbourne. “Investors have been keen to see vendors leave more money on the table,” including resisting the urge to offload all of their shares in the sale. “Investors want vendors to retain larger post-IPO holds,” he said.
Recently listed Costa Group is a case in point. The family-owned fruit and vegetable seller had hoped to price its IPO at between 17 and 25 times projected net profit but struggled to gain traction with investors. After delaying the publication of its prospectus and rescheduling its roadshow, the company eventually returned to market in July with a valuation of 16 times, pricing at A$2.25 a share or at the low end of the original range of A$2.20 to A$2.70. Investors have since watched the shares languish, closing down 8% within a month of listing.
Another IPO prospect to lower its price was mobile services provider Amaysim, which initially tabled a A$300 million transaction in May but settled on A$207 million when support from cornerstone investors failed to materialise. Its shares have traded up, however, adding 14% since listing in July.
ECM bankers see Amaysim’s experience as a reason to remain upbeat about deals that stumble at the first try. “Very often issuers use the financial forecasts published in their prospectuses as a re-entry point,” John McLean, Citi’s head of ECM in Australia, said. “If a deal falters but the company goes on to achieve the forecasts laid out in the prospectus, they can come back to market with renewed confidence.”
One factor leading to the repricing of IPOs is the changed appetite of liquidity providers or hedge funds. “These funds have large cheque books compared to the size of the Australian market and can really impact the success of a transaction,” Sean Walsh, head of Australian ECM at Goldman Sachs, said indicating they have pulled back as a result of instability in China and Greece.
“IPOs are all about scarcity and momentum and this is hard to generate when offshore liquidity providers or long-only investors become cautious. That’s one of the reasons why the focus has shifted to bringing good quality companies to market with deal structures that align the interests of buyers and sellers,” Walsh said.
All eyes are now on share registry business Link Market Services, which hopes to list on the Australian Securities Exchange by the end of the year. Citi, UBS, Macquarie and Deutsche Bank are acting as joint lead managers and the target is to raise around A$2 billion. If successful, the private-equity-backed deal could pip software company MYOB as the country’s largest primary offering for 2015. MYOB raised A$830 million in May, though its shares are down by about 10% on its IPO price, indicating big doesn’t necessarily mean profitable for investors.
This item has been updated to include the latest league table for bookrunner, Australia/NZ.