LONDON (Reuters Breakingviews) - Blame for failed initial public offerings is spread widely and thinly. Two British companies pulled their planned London listings on Friday, following weak performances from other new stocks. At the same time, tycoon-controlled Russian energy group En+ priced its shares at the bottom of the offer range. The one thing still rising is the number of banks working on IPOs. That’s part of the problem.
Arqiva, a broadcast infrastructure group, and Bakkavor, which makes hummus for supermarkets, both shelved their IPOs at the last minute, saying that the market for new issues is too volatile. There’s something to that, at least in Britain. Companies in Europe have raised $38.5 billion in new equity offerings in 2017, 22 percent more than at this time last year. In Britain, however, total takings are down 13 percent.
True, the affected companies have their quirks. Arqiva runs old-school TV masts, while Bakkavor has four customers of scale and En+ is an oligarch’s plaything. Yet newly listed stocks elsewhere are also doing less well than new investors might have hoped. Shares in BAWAG Group, an Austrian bank, have fallen 5 percent since they started trading on Oct. 25. SMCP, a French clothier, is also trading below its offer price. HelloFresh, which delivers pre-prepared recipe kits and is ploughing the proceeds of its offering into marketing, is barely a whisker above where it started on Thursday.
Hedge funds are one source of trouble. Having made a decent return this year so far – 10.7 percent on equity strategies by Sept. 30 according to Preqin data – fund managers have little incentive to risk their performance fees on untested new stocks. Shares in Blue Apron, an American HelloFresh clone, have plunged by two-thirds since the company’s June IPO in New York. Hedge funds aren’t everything, but they provide capital markets bankers with a useful way of jimmying up price tension.
The finger then points to the banks themselves. After all, their job ought to be to know how market participants are feeling some time before the 11th hour. But accountability is being spread ever thinner. A European IPO now has on average 2.5 bookrunners – the highest ever in the region. Failed IPO candidates may say they don’t need the money, but what they do need is a bit more discernment.
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