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The spigots are, at least partially, open. From European beauty to US social tech to Chinese bubble tea, 370-odd initial public offerings have raised some $32.3bn in the first four months of the year.
London is conspicuous by its virtual absence (a nugatory $371m).
British brokers, an inherently glass half-full bunch, are unfazed. Peel Hunt, which minted its own IPO speedometer tracker, sees “more positive” early indicators after a miserable 2023. Buoying its confidence: increasing European IPOs and encouraging broader activity in equity capital markets.
Investors will hope they are right. More than national pride is at stake when IPOs are delivering juicy returns on day one. Shares in European private equity firm CVC popped as much as 25 per cent when they debuted in Amsterdam last week. Astera Labs shares, which began trading on Nasdaq in March, gained 72 per cent.
Old UK hands will know the drill. Buying early and flipping was a staple ploy for the slew of shares unleashed by then prime minister Margaret Thatcher’s privatisation drive in the 1980s and 90s. That galvanised the desired retail participation, but short-term investors do not make for healthy shareholder registers.
Several factors fuel those pops. One is the IPO discount, typically a 20 per cent or so cut on peer valuations. Underwriters, leery of being left with stock, have a natural bias towards leaving money on the table.
But issuers too are becoming more restrained on pricing: unsatisfied demand represented by bulging order books supports the shares. That is especially helpful for those who may be thinking of stock as an acquisition currency in the future.
Still, there are plenty of flops. German perfume and cosmetics retailer Douglas dropped on its debut last month. Last year more than half of US IPOs notched up day one falls, according to data collated by the University of Florida’s Jay Ritter. US first-day gains fluctuate wildly, even when aggregating into averages: from a slim 7 per cent in the 1980s to 65 per cent during the dotcom bubble years of 1999-2000.
Diversification is one solution. IPO ETFs offer just that, tracking the IPOX benchmark indices that invest in IPOs, direct listings and companies that have acquired others within their first seven years of going public.
Tracking these indices would have paid off over one and five years, but — and in contrast to the S&P 500 or Euro Stoxx 50 — lost money over three years.
The top 10 holdings in the First Trust IPOX Europe equity opportunities ETF — which is UCITS compliant, so available to UK investors — include Arm (because it is UK based, even if listed in the US) and GSK. The UK-listed drugmaker bought oncology-focused Tesaro in 2019 and Sierra Oncology in 2022, which listed in 2012 and 2015 respectively.
The comparable US fund has ride-hailing app Uber and hosting site Airbnb among its constituents.
An alternative (and riskier) route is via pre-IPO, or rather potential IPO, candidates. This can be done via UK-listed investment trusts like Chrysalis Investments and Augmentum Fintech.
The former’s holdings include fintechs Klarna and Starling Bank, both of which are mooted IPO candidates, as well as chipmakers and online travel. Shares in Chrysalis, which has a market cap of less than £500mn, are up about 40 per cent in the past year.
There are certainly risks here. But a dearth of IPOs at home does not mean UK investors with the stomach for it are excluded from the party.
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