Speculative money puts in an appearance to plague IPOs
Recent popular new issues rapidly faced heavy trading and price falls. With the tendency of speculative money to disappear as quickly as it arrives, it remains to be seen whether it will continue to plague IPOs later in the year.
Given the strength of secondary markets and the widely noted huge volume of liquidity chasing deals, the relatively poor performance of some recent IPOs seems odd.
Some of the biggest and most hotly anticipated deals – such as the IPOs of Kazakh copper miner Kazakhmys, Swiss wealth manager EFG, Belgian cable company Telenet and German speciality fund manager HCI Capital – saw huge volumes of trading on their first day and closed either below or barely above their issue price, despite being substantially oversubscribed.
The reason, say ECM bankers, is the return of speculative interest in IPOs. “Valuations are really tight right now,” says the head of ECM at one European investment bank. “Many deals that looked as if they were doing really well on paper have ended up disappointing. The reason is that the quality of investors in some of these deals is going down. There are a lot more speculative guys now involved.
“Earlier in the year everyone interested in an IPO would be telling us that they’re interested because they’ve studied the company and really like what they see, but now we get people just ringing up to say they want in because they think the deal is hot.”