Resellers are falling out of love with IPOs

Report by KPMG shows a steep fall in IPO activity this year, but there could still be an upturn

The market for Initial Public Offerings (IPO) in the UK declined by a massive 58 per cent last year, according to a report by KPMG.

The accountancy firm said that the market plummeted from £1.37bn to £569m, with fewer firms filing for

IPO. However, last year’s figures were reinforced by IPOs from telecoms firm Eircom and Halfords, which contributed a combined value of £851m.

Neil Austin, head of new issues at KPMG corporate finance, said: “Investor appetite is strong, but only for those with a compelling growth story. Five of the seven IPOs this year were in May and June, so we should expect to see a major upturn in activity during the second half of 2005.”

The report reveals similarities with an earlier KPMG report, which stated that the IPO market for 2005 was in “robust health”. (CRN, 11 April)

One of the most memorable IPOs of 2004 was the flotation of Google, which has so far raised roughly $84bn.

The UK Alternative Investment Market (AIM) has seen 148 new entrants since the end of May, raising a total of £1.25bn, according to KPMG. However, fewer than 15 per cent of the new entrants generated more than £20m, and the other 85 per cent raised an average value of £3m.

“The challenge for AIM will be to establish itself as the market of choice for European companies,” Austin said.

Alastair Edwards, senior analyst at Canalys, said: “The figures are representative of the channel.

“The main issue is that it has become difficult for investors to gauge the value proposition in IT companies because their operations have become so complex.”

Edwards added that IPOs are beginning to fall out of favour with resellers as a way of raising funds.

“Resellers are more inclined to look for alternative sources of funding, such as private financing,” he said.