As the Aldermore flotation falls through, is the IPO market showing signs of collapse?

John West, equity capital markets editor at Dealreporter, says Yes.

Institutional investors started 2014 hungry for European initial public offerings (IPOs) – even at full valuations. Not any more.

Yesterday, the VDAX-NEW volatility index hit a two-year high above 26 – well outside the 15-20 sweet spot in which bankers ideally place new stock. IPOs are not immune to market moves. Lacklustre macro data and fears about Ebola took hold of sentiment just as Aldermore was bookbuilding. And the lender had been looking for a punchy valuation – one banker commented that it priced in “flawless execution”.

Equally, Spie would have been France’s largest IPO this year. But the energy services group also pulled its listing this month, citing “volatile market conditions”. Further, Spie’s toppy €2.25bn-€2.75bn (£1.8bn-£2.2bn) valuation was criticised by investors, who saw little upside.

Jittery markets hinder listings. And incidentally, both Aldermore and Spie have private equity sponsors.

John Hammond, head of equity capital markets at Deloitte, says No.

You only have to look at the recent falls in the FTSE 100 to understand why the current IPO market is under the microscope.

However, this appears to be a blip amid a good year for new issues and a strong outlook for 2015. The vast majority of premium IPOs have performed better than the FTSE in 2014 – with all 12 of those launched since the beginning of June outperforming by at least 4 per cent.

This suggests that, fundamentally, investors shouldn’t shy away from new issues – they can make super returns. Of course, it all comes down to price and confidence. Where these are attractive and high respectively, IPOs will succeed.

Investors have always been selective, as they are in this current market. It’ll only take two or three new IPOs to create a buzz and boost confidence. This may happen in the last couple of months of the year. But if not, we fully expect it to in 2015.

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