It’s a pity there is no external research for Partnership

David Hellier
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As the £1.55bn flotation of Partnership Assurance reaches its taking-off point, there is reason for celebration in London.

This latest IPO has gone according to plan, quicker than planned even, and has generally achieved a result that would have been unthinkable a year ago in London, when the door on the new issues market was virtually slammed shut.

With Partnership in the bag, this has already been the best year for London IPOs since before the financial crash in 2007. And Partnership is the first sale in London by a private equity group since the IPO market collapsed, with institutions citing unrealistic valuations as part of the trouble.

This is all positive and yet there are still niggles to make one feel nervous about the state of the market and the IPO process as a whole. To take the latter point first, it seems incredible to some that there has so far been no independent research written on Partnership.

Independent research is not necessary for a flotation process to be considered well run but the input of industry specialists who work for banks that are not tied to a deal is generally considered a healthy thing.

Those banks who are tied to a deal, in this case Morgan Stanley, Bank of America Merrill Lynch, KBW, Panmure Gordon and Evercore, are forbidden from publishing research for fear they could be deemed to be seen to be promoting the company’s stock in the way that, say, Henry Blodget did during the dotcom boom. Their research departments do write notes which are available to potential institutional investors but they are unable to publish these publicly.

On the other hand those who are unconnected to the deal have in this case, as is common these days, produced nothing for the investment community to consider.

For one thing, banks unconnected to a float are normally not paid by institutional shareholders to publish research. But they are also largely kept out of the process, being deprived of the numbers they say they need.

“It’s a pity independent analysts can’t get access at the earliest opportunity,” Shore Capital’s Eamonn Flanagan told me yesterday. “We’re being asked about Partnership’s value by clients all the time, but we can’t form a view because we can’t get access to detailed numbers.”

Flanagan, like other unconnected analysts, have been kept out of meetings with Partnership’s management until the shares in the group start trading. The banks say this is mainly for legal reasons but they point out that they have engaged with non-syndicate analysts.

As with most IPOs these days the prospectus for the company will be issued at the end of the marketing process rather than at the beginning.

Independent brokers will be brought in to meet management after a blackout period of 40 days or so, but surely their involvement would have been beneficial at an earlier date.

Partnership may be a fine company and its core selling point, being able to offer higher annuity rates to clients whose medical conditions or lifestyle choices (for example, smoking) make them more likely to topple over earlier than their peers (with lower reserve requirements), may be a winning formula. But experts in the sector should be encouraged to scrutinise such assumptions. They’re not doing so now.

The other thing is this. Whereas in London we’re celebrating eight IPOs, in New York it is currently 75. We have a way to go.

City A.M. is hosting an IPO roundtable discussion in association with Jefferies on 20 June at Bank of America Merrill Lynch. Please email if you are interested in attending.