A lot of new firms listed on the Australian Securities Exchange (ASX) for the first time in 2014. Over $16 billion of shares were sold in 60 initial public offerings of shares (IPOs). This high value and high number of IPOs represented a re-opening of that market. The well known graph below is taken from the RBA chart pack. It shows that in the six years from 2008Q1 through to 2013Q4 there was only one good quarter for IPOs — in 2009Q4 when Myer was refloated on the ASX.
The second part of the graph (the orange bars) show the volume of SEOs (seasoned equity offerings). SEOs are share issues by firms that are already listed on the ASX. The red bars at bottom show the buy-backs of shares, which are the opposite of SEOs. Let’s leave SEOs and buy-backs for another day.
Why did the IPO market reopen in 2014 and not before?
The IPO market is especially fickle. There is always a pipeline of private (unlisted) firms that want to go public (list on the ASX). But they cannot always get a reasonable valuation for their shares.
It is the ECM (equity capital market) groups of investment banks that help private firms to go public (for fees of up to 7% of the value of shares sold). ECM groups are always testing the appetite of institutional investors for IPO shares. When institutional investors see value in IPOs, and the IPO channel then opens up, the ECM groups try to get as many of the firms in the pipeline through as possible before institutional investors lose their appetite.
It is hard to know whether the channel will stay open in 2015. The signs are promising and there is certainly a big pipeline after the long years of the channel being closed.
First day pop
Investment banks love underpriced IPOs because it allows them to do a favour for their most profitable institutional and private wealth clients by allocating those clients shares in IPOs that will enrich the client.
Participation in IPOs
But what about the $5.6 billion Medibank Private IPO? Anyone could apply for an allocation — 440,000 retail investors did just that. Did your financial advisor speak to you about Medibank Private? Retail investors paid $2.00 per share and they listed at $2.22.