08 November 2013

Australia is in the thick of it with IPOs

So far this year, there have been 25 announced or completed initial public offerings (IPOs) worth a combined USD 3,811 million targeting Australia’s stock exchanges, almost triple the USD 1,375 million-worth of listings for all of last year, according to Zephyr, the M&A database published by Bureau van Dijk. While overall value is still a far cry from the USD 18,401 million-worth of announced or completed IPOs in 2007, it is currently at the best level recorded since 2010 (USD 6,224 million) and the figures do not include those companies reportedly waiting in the wings to debut.

While confidence has returned to the market on the back of a change in government, which is pledging to lower taxes, the successful float of Virtus Health by private equity house Quadrant in May has certainly helped open the IPO floodgates. The Australian fertility group raised USD 328 million by selling 61 million shares at AUD 5.68 apiece and its stocks have since risen 52 per cent at the time of writing. Similarly, OzForex, which is backed by powerhouses Accel Partners and the Carlyle Group, went public in October in the largest completed IPO by an Australian company so far this year and the online foreign exchange specialist’s shares jumped 28 per cent in the first day of trading.

Roger Feletto, co-chief executive officer of advisory firm Greenhill & Co’s division in Sydney, told Bloomberg that investors are now chasing performance again and are much more open to IPOs than before, adding this includes looking at assets owned by financial sponsors, representing a contrast to previous years. This follows comments that Mark Gross made to the Wall Street Journal (WSJ) in September, when the executive director of corporate finance at RBS Morgans told the newspaper Virtus Health’s listing has been a fantastic success that has given investors the confidence to go back into the private equity float, considering some of the pretty disastrous offerings from buyout firms such as Collins Foods scared a lot of them away.

The debacle in question involved Pacific Equity Partners listing Collins Foods via a share sale worth USD 217 million at the time. However, just months after the debut the fast food company cut its profit forecast and stocks have fallen by a third from the IPO price and now currently trade at AUD 1.63. However, the deal is now fading into a distant memory as there are a number of major floats slated to hit the markets in the coming months and early next year, including packaging manufacturer Pact Group, broadcaster Nine Entertainment and mining logistics BIS Industries, all of which are being valued at more than AUD 500 million (USD 474 million). 

Media company Nine Entertainment counts Apollo Global Management and Oaktree Capital as shareholders and is planning to raise between AUD 634 million and AUD 697 million in an IPO which would be the largest Australian listing by value in almost three years after QR National went public in November 2010 in a deal worth AUD 4,052 million, according to Zephyr. However, Pact Group could outperform Nine Entertainment as the packaging industry company controlled by billionaire Raphael Geminder is seeking between AUD 650 million and AUD 700 million in a listing scheduled for December, according to recent reports. A source familiar with the situation told the WSJ that Pact could snatch the title of the country’s largest IPO in 2013 from Nine Entertainment as it wants to raise AUD 700 million. The newspaper noted analysts expect the rigid plastics packaging maker will have a post-listing market value of between AUD 1,000 million and AUD 1,200 million.

According to a Bloomberg report two weeks ago, Mike Neal, the executive director of the Commonwealth Bank of Australia’s capital markets division, said at a conference in Sydney that there are up to 12 IPOs are in the pipeline and expected to emerge within the next two months, with demand for the shares pushing up price gains by between 5 per cent and 10 per cent on the first day of trading alone. Neal said: “The window is open, there’s a heap of companies that are still trying to rush through that window prior to year-end. Not all will make it.”

© Zephyr