On Thursday Andrew Thomas came to give a talk about his experience as a Managing Director of Rothschild. Andrew is ex-Leeds alumni and started his career in Audit before moving on to M&A Advisory (a cog in the career known as Investment Banking), where he has built a successful 22 year career within Rothschild’s Regional office in Manchester.
During his talk he opened the floor for questions. With the IPO boom we’re experiencing in the UK it was only naturally that he was asked about what drives IPO growth.
Summarised below are three of the main reasons that drive IPO growth and my opinion on their effect this time round.
An ‘IPO’ is an Initial Public Offering, where a company first floats itself on a stock exchange in order to raise capital (money). By selling shares of its company, in the form of stock, an IPO can be a very fast and effective way of raising vast amounts of capital.
For IPOs to be successful there have to be willing investors with a suitable amount of cash to invest. Recently we have seen a significant number of equity houses accumulating vast amounts of cash and this has helped contribute to the IPO boom. Quantitative Easing (QE) has meant that a significant amount of money has moved from bonds to cash. This was the intention of the BoE in order to get the economy moving again.
Political pressures play a huge part on IPO growth. If the country is in an unstable environment (such as the Ukraine) then IPOs come to a standstill. In this case I would be weary of the General Election in 2015, which might affect IPO performance and activity, at least until a firm government has been chosen. Political manifestos will also play a large part on IPO performance, as some political parties might be adverse to incentivising the markets.
Confidence is key. Without confidence in the markets, the companies and the economy investors will more risk adverse and shun IPO offerings for less risky acquisitions. As the ICAEW shows business confidence is at an all new record high for the UK, which explains why we have seen such strong IPO activity in the UK; ranging from Royal Mail to Poundland and Pets at Home.
IPOs are a great signal of a booming economy and therefore we should see this more recent boom as a great sign that the UK is back on track.