As the recent flotation of Virgin Money proved, albeit after a false start, London’s window for new issues (or Initial Public Offerings, IPOs) isn’t absolutely closed, as it was a couple of years ago. But, after a stunning year, it’s damned close to it.
There have been 121 IPOs in London and in general those who have joined the public markets have not fared too badly, with share prices rising on average 6.5 per cent from the issue prices. But both in London and in Europe there have been some very glaring disappointments, making the IPO market appear less attractive to institutions than is ideal.
News last week that the US regulator is close to reaching a settlement with seven investment banks over the way they may have pressurised in-house analysts to take too rosy a view of companies their corporate finance arms were trying to float, has caused bankers here to ask what is permissible in Europe.
Many bankers and institutional investors argue that the presence of independent financial advisers on deals has led to sub-optimal outcomes, with shares in soon-to-be listed companies priced at unrealistic levels. They point to disappointing early trading in Saga, Card Factory, eDreams, Exova and Intelligent Energy to back up their case. Saga also caused controversy when advisers wanted it valued as a consumer stock rather than an insurance one. One banker yesterday told me the IPO process in Europe was so discredited that he feared the banks would be disintermediated by institutions buying sizeable stakes direct from the companies themselves.
Regardless of what transpires in the US, those who regulate the European capital markets need to restore confidence soon. They ignore the warning signs at their peril.