When a company IPOs, or makes an Initial Public Offering, it offers shares to the public, usually on a regulated exchange, for the first time. A company might decide to IPO when it gets to a point in its growth where it needs to access another stream of capital, away from bank loans and shareholder equity. The IPO will give the company a lump sum of capital, so it can invest in its business, pay off its loans or make an acquisition.
The more funds, the greater the chance of growth. A public listing also gives the company greater recognition – and media coverage – which might help it sell more of its products and being publicly-listed gives the balance sheet better liquidity. Moreover, a listed company has improved value visibility, which is important in M&A transactions and there is the prestige of a public listing, which enhances the company’s credibility. An IPO is also good for the business’ founders, as when they decide their time at the helm is up, they can cash out usually at a higher value than if they’d remained a private company.
When 2022 kicked off, a slew of companies put themselves up for candidacy to IPO in the UK and other markets. The war in Ukraine and the following market turbulence saw a lot of these candidates sharply apply the brakes. However, as the markets priced-in a protracted conflict and the effect it would have on the global economy, an element of stability has crept back into the markets and a few companies are starting to look over the parapet once again.
Emperor’s New Clothes
The decision whether to invest at the IPO stage, has become a bit more difficult. In the dotcom boom of the 1990s, new tech companies were coming to market with alarming regularity, and it was a safe bet to throw a bit of money into the market and subsequently take a lot out. However, since the last financial crisis (2008, not the current state of affairs), IPO investing has been a lot more hit and miss. Many companies have come to market with great fanfare and their shiny new shares perform brilliantly on the first day, but then like the Emperor’s New Clothes flatter to deceive, and perform disappointingly from that point onwards.
There are too many companies from the past three years to name and shame, but when investing in an IPO it’s important to cut through the hype, dodge the popping champagne corks and ticker tape, and look at the long-term viability of the company. Often, if a company has been around for a long time before IPO, it’s likely that it is going to be around for a long time after. Not that new companies are a bad bet, but the fundamentals, the market and sector it is operating in, its customer base, and its product viability are key to sustainability. IPOs can be a bit of a ‘fad magnet’ and it’s always a better long-term strategy to not invest in a short-term trend.
That said, here’s a few of the names that have been doing the rounds as potential IPOs:
Sustainable Farmland Trust plc
Sustainable Farmland Trust is one of the most nailed-on entrants to market, having widely telegraphed its intention to complete a GBP200m listing in London and will come to market on 12th October offering 200m shares at GBP1 each. The Sustainable Farmland Trust is an investment company that invests in farmland and agriculture-focused assets predominately in the US. The company’s investment manager, Intl Farming Investment Management LLC and its affiliates, have more than USD2.2bn (GBP1.92bn) assets under management and has its eye on another USD3bn of assets, something which the manager says will expand. This might be a canny investment, as traditionally farmland is an inflation hedge, and with the current war in Ukraine wreaking havoc on the international price of grain, the land that Sustainable Farmland Trust has under management is worth a lot more now than at the start of the year. Brokers will be keeping their books open until 0900 on 7th October with a GBP1,000 minimum investment.
Have you got to that age when you feel a pressing need to own a high-performance sports car that you can drive around in 20mph city traffic whilst spending an eye-watering amount of money keeping the petrol tank topped up? To many owning a Porsche is a luxury beyond our means, or a daft use of capital, but you could own a bit of the company that makes the car with the marketing slogan: ‘Youth is much better when you are old enough to enjoy it.’ Well this nonagenarian has also signalled (after checking its mirrors, of course) its intention to become a public company by the end of this year as its parent Volkswagen cashes in on the luxury brand, presumably to invest the capital it will raise in eminently more sensible products, like electric vehicles.
A prospectus has been published and Volkswagen hopes to raise between EUR70bn (GBP61.3bn) and EUR75bn. The share capital of Porsche as been divided into 50% non-voting preference shares and 50% ordinary shares, Volkswagen will retain 75% of ordinary shares, while Porsche will acquire 25% of ordinary shares. Volkswagen will also retain 75 % of preference shares, while 25% of preference shares, or 12.5% of the share capital, will be sold during IPO. The Qatar Investment Authority has already committed to buy 4.99 % of preference shares, leaving another 20.01%, or 10% of share capital, to other investors.
If you want to own a bit of luxury, get in quick, as the offer period for the 911 million (see what they did there?) shares will close on 28th September. Volkswagen has apparently received enough orders to cover its EUR9.4bn IPO multiple times at EUR76.50 to EUR82.50. However, many analysts are saying that the price is too high. We will cover this issue in a standalone article after the company comes to market.
Independent Living REIT
Away from the razzmatazz, Independent Living REIT is a real estate investment trust, investing in supported housing for people with learning difficulties, suffering from homelessness or over 55 years old and needing extra care looking to raise GBP150m through IPO to part-fund a GBP500m pipeline of property acquisitions. While target share prices have yet to be announced, Independent Living REIT is targeting a 5p per share dividend for the first two years post admission, with an annual return of 7% to 10% over the medium term. The REIT will be managed by investment firm Atrato Partners and was incorporated in July.
FinTech is a perpetually capital-hungry sector, and Klarna, the Swedish ‘buy now, pay later’ provider is one of the strongest names in the market. It is likely to joined on the markets by London-based, Ruso-Ukrainian founded Revolut, the banking app. At the end of 2021 Klarna completed a significant funding round, after which it was valued at USD45.6bn – making it one of the most valuable, if not the largest fintech in the world. Klarna has put its toe in the water, outlining its intention to become a public company back in 2021, but its chief executive, Sebastian Siemiatkowski has been a bit more cautious this year, citing stock market volatility, but says that it the company’s intention to IPO sooner rather than later. But when, and where are still questions that have been left hanging. It’s likely to be at the end of this year or early 2023, and probably the US, but Siemiatkowski has also said that London is a domicile that has great regulatory infrastructure, history, and an international audience.
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