Source: The Australian
LOW business confidence and sentiment will continue to cloud the IPO market in Australia next year, but with a backlog of potential market listings and record amounts of cash on the sidelines, activity could pick up in the later part of the year.
Ernst & Young's year-end global IPO update, released yesterday, shows that while the global outlook next year is more positive than this year, a tough 2012 is still weighing on activity.
In Australia this year there have been 36 IPOs to the end of last month, with total capital raised of $US865 million ($821m) -- down 63 per cent in volume and 29 per cent in value compared with last year.
More than half the 36 capital raisings were small resource companies with average capital raised less than $US10m and a single IPO -- Woolworths' spin-off of retail properties into the Shopping Centres Australasia Property Group -- accounted for more than half the total capital raised for the year.
Anne-Maree Keane, Ernst & Young Australia transactions partner, said the Australian equity market was in "relatively good shape" and was "on the up", but broader business confidence and sentiment continued to cloud the outlook for increased activity.
"There are companies in the background, potentially waiting to go (to IPO) but in the meantime they tick along, business as usual," Ms Keane said.
"There is a backlog but people are reluctant to embark on an IPO process because of the time, cost and risk.
"People do need to exit some of these businesses. If you're a large, family-owned operation, succession planning is starting to become a real issue for some because it's been potentially five years waiting for things to get better."
Ms Keane said this year was driven by sentiment and that, while there were record amounts of cash looking for a home, investors were concerned that IPOs resulted in an immediate drop in the value of their investment.
A lack of confidence to invest for the long term was seeing people focus on short-term fundamentals and what their return would be in six months, rather than three to 10 years, she added.
"Retails investors and institutions have seen that immediate decline in their investments, so they are keeping their money in cash," she said.
While historically there was a strong uptick with IPOs following a quiet period, Ms Keane said the volatility in global markets made it difficult to predict what the future held for new listings.
"Historically, when we've had a quiet period of IPOs and the window opens, there is a rush and that creates some competition," she said.
While sentiment remains cautious, the global report is tipping a pick-up in the second half of next year, a trend that is also expected to be seen in Australia.
Ms Keane said the company was getting more inquiries and, while there had previously been a few false starts on activity picking up, plans that had been deferred were being revisited.
"We are getting an increased level of inquiries where people are starting to tentatively think about putting it back on the board agenda for next year and that is something that we haven't seen for a few years," she said.
