The IPO window shuts

Fairfax Media

GLOOMY: The window of opportunity for sharemarket floats looks likely to slam shut pretty darn quickly. Severely bruised fingers are inevitable.

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OPINION: The window of opportunity for sharemarket floats looks likely to slam shut pretty darn quickly. Severely bruised fingers are inevitable.

The problem we are running up against is the problem we always encounter in New Zealand the minute the market looks ripe for some initial public offerings - or IPOs.

What invariably happens is that opportunists with dollar signs in their eyes go running toward the stock market, float a company they want rid of, and sell all of their shares.

In Australia we have just seen private equity completely exit from the Myer department store chain in a hugely-hyped float. The true test of the enduring nature of an IPO is always how the "after-market" performs - what the share price does once the company is actually trading on the stock market.

Myer has been a dismal flop. The private equity boys have run for the hills with their loot and the mug punters that bought in are currently sitting on shares worth 6 percent less than they paid for them.

Now we've got Kathmandu, again hugely hyped, and again with private equity owners wanting out completely. The owners have achieved their aim. They are out. They have made a substantial profit. But with the final share price in the float settled at A$1.70, near the bottom of the A$1.65 to A$1.90 target range, the prospects are not good for the after-market with this one either.

In terms of the rumoured and/or confirmed floats coming up after Kathmandu, arguably only BioVittoria is one that is going through the IPO process in an attempt to find cash to fuel growth.

It was always my concern that once market conditions looked more conducive for floats this would be seized upon by those looking to either get shut of businesses or to saddle someone else with debt.

The problem that you always face with these sorts of floats is: What's left for the investors who buy in? Well, if you want to talk about the worst example, the private equity sale of Feltex, it was a lot of anguish and the loss of all of your money.

Feltex is as bad as it gets and I'm certainly not comparing any of the new floats with that one.

But if people in New Zealand are ever going to get genuinely interested long term in sharemarket investment, then they need companies putting in front of them that have genuine growth in them. They don't need businesses that have had most of the potential growth already wrung out of them, with just a little left by the time the companies list.

The Myer float was always going to be hugely significant. If it was a big success, with shares sought after post-float, then you could have expected a wave of new listings in the first half of next year.

I would suggest that with what has happened - and if Kathmandu's share price performs poorly on listing this will compound it - a lot of listing plans have just disappeared.

The significance of this will probably become apparent in the next few months.

It's my view that a hell of a lot of, particularly private equity-owned businesses, were being targeted for sale in the first half of next year. A big motivation for this will have been the fact that many struggling businesses face renewing their banking facilities from June 2010 onward.

The logic flows that if the private equity people could flick businesses on for nice profits in the first half of next year they could then look at buying some seriously distressed assets in the second half.

But if they can't of course offload their businesses in the first six months of the year, all of that falls down. And the distressed businesses don't have many ready buyers.

From were I'm standing 2010 is not looking anything like as bright as many people are expecting.

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