IPOs On The Rise Again

Published in Investing on 30 December 2010

The number of companies floating on the Stock Exchange grew fivefold in 2010.

One measure of the strength of the stock market is the number of Initial Public Offerings (IPOs), in which private companies are floated in order to raise cash -- to fund further growth, or to realize profits for their owners, or both.

By that measure, the London Stock Exchange (LSE: LSE) was a pretty sick puppy in 2009, but according to a new report from that very organization, 2010 looks like it's been a big step on the road to recovery.

Bouncing back

The report shows us that, taking into account both the main market and AIM, an estimated total of 89 companies floated in 2010, raising a total of more than £10bn.

That's way up from the mere 22 IPOs from the year before, and also up from the 73 companies that came to market in 2008. It's still some way down on the previous years, though, and looking at the main market and AIM separately might raise a few eyebrows.

Up to 2007, the main market was running along at a rate of around 88 flotations a year, falling to 35 in 2008, and 9 in 2009, before bouncing back to 46 in 2010 -- which is quite a recovery.

Poorly AIM

But by contrast, AIM looks a lot less healthy, with annual flotations falling from 335 in 2005 to 182 by 2007, and then slumping to a low of 13 in 2009. And 2010's boost to 43 companies only brings it back to less than a quarter of the immediate pre-slump level, and that had already been falling strongly.

AIM is the first step into public ownership for many smaller companies, which can't afford and don't really need the more stringent regulation of London's main market. And, of course, such upcoming small companies are the lifeblood of future generations of the stock market.

But what these figures suggest that is that smaller start-ups that have been choked off in the last few recessionary years. That's really not too surprising, but some will worry about the gradual fall off even in the years immediately preceding the crisis -- the fall from 335 in 2005 to 182 in 2007 is a drop of nearly 50%, during a three-year period over which main market figures remained steady.

But what of the companies that actually floated this year?

The year's winners

It's often said that IPO is the worst time to buy shares in a company, because the timing and pricing are designed to get the most money possible for the company's private owners, and not to provide a bargain opportunity for new punters. But 2010 was year in which the opposite happened for a number of astute investors, and there were indeed some impressive IPO bargains to be had.

Those who bought shares in trendy fashion retailer Supergroup (LSE: SGP) when it floated back in March at a price of 535p saw their investment triple in value in almost no time at all. The shares have fallen back from their peak of over £16 to under £13 today, but that's still a nice little earner.

2010 also saw the flotation of Essar Energy (LSE: ESSR), an India-based energy company, followed by a nice rise from its opening price of under £4 to £5.80 today.

And the losers

But on the downside, we also saw disappointments including Promethean World (LSE: PRW), whose share price has slumped by around 70% to 64p, and Betfair Group (LSE: BET), which reached a peak of £15.50 before sliding back to under £10.

But what about next year? With markets strengthening and some optimism returning, I'd certainly expect to see a greater number of flotations, though probably not back to pre-recession levels.

Quite how well AIM will fare next year is a hard question. The hundreds of new companies we saw joining the junior market in 2005 was arguably excessive, and it resulted in a lot of low-quality entrants. But it would be good to see a further pickup here, though that might not happen until the economic climate returns to favouring classic small growth stocks again.

More from Alan Oscroft:

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mcturra2000 31 Dec 2010 , 9:02am

Interesting statistics. Thanks for posting. What source did you use?

TMFBoing 31 Dec 2010 , 12:10pm


It was the LSE's report (which is actually linked in the second paragraph), here...


Foolish best,

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