IPO methods under spotlight
A spate of poor deals gets the investment bankers thinking. After a difficult October, in which initial public offerings met with a variety of fates, attention last month swung once again to the IPO process itself.
The UK’s Financial Services Authority announced that it was launching an enquiry into competitive IPOs, because of concerns that the process encouraged banks to put forward inflated valuations to win business.
The process has worked well in some recent deals, such as private bank EFG’s Sfr1.6 billion ($1.2 billion) IPO in October, and the £355 million ($610 million) IPO of Inmarsat, a UK satellite operator, in June. But concerns were raised by the spectacular disappointments of a number of competitive IPOs towards the end of October, when optimistic valuations fell foul of the secondary market’s seasonal malaise.
The private equity owners of Eutelsat, a pan-European satellite company, had hoped to attract a valuation of up to €3 billion, but were forced to reduce their expectations by more than 20% before eventually abandoning their IPO plans altogether as market conditions became rough.
Telenet, a European cable company, whose mid-October €924 million IPO plunged 7.1% on its first day of trading despite pricing at the bottom of its range, had also used a competitive IPO.
Competitive IPOs are supposed to help an issuer set a more accurate price by getting lots of banks involved in contacting investors about valuation expectations.