While there was a spate of successful IPOs at the start of year, sentiment has reversed and investors are less willing to back newcomers to the market.
In recent weeks, challenger banks Aldermore and Virgin Money have both pulled their IPOs, pointing to difficult market conditions, to join a growing number of cancelled listings.
Aldermore had expected to raise £75m, while Virgin Money was targeting £150m at IPO.
Managers said the current environment means firms must be clear about their aims, and price their shares properly, in contrast to the giddy valuations seen earlier this year.
Chris White, manager of the £385m Premier Income fund, said: “The IPO market is looking challenged, it feels tired now. Companies which are coming to market at high valuations are less likely to get away with that, and have to make sure they are priced correctly.”
Leigh Himsworth, manager of the £64m City Financial UK Opportunities fund, said the number of unsuccessful IPOs seen recently highlights the speculative nature of some parts of the market.
“The failed IPOs tell of the opportunism in the market, and the only ones that have been successful are those which have a clear, strategic business plan and have made decisions for the long term.
“Directors should only float a company when it is in the firm’s long-term interest.”
Richard Hallett (pictured), running the £90m Marlborough Multi-Cap Growth fund, participated in several IPOs at the start of the year but has not backed any since the float of The AA in June.
The AA was initially valued at £1.4bn and shares were oversubscribed. Hallett suggested positive investor sentiment towards new issues is unlikely to return until markets have stabilised.
He said: “Over the last few weeks, the market has been particularly volatile, and there has been a sell-off as well as ongoing macro concerns. This means investors are balking at committing any new money to these ventures.”
The managers noted the IPO frenzy at the start of the year saw several firms listing their shares at over-inflated prices.
Himsworth said: “Where previously only the best firms succeeded, the pent-up demand at the start of the year meant firms floated at silly multiples – they were coming through left, right, and centre. Now we are back at a proper discriminatory market.”
Some firms are managing to buck the recent trend and float successfully, albeit at a lower price than expected. Luxury shoe retailer Jimmy Choo listed on 17 October at 140p per share, having originally set a price range of 140p-180p.
Hallett said: “Jimmy Choo successfully floated, but it was at the bottom of its expectations. It is now trading at a premium though, so it shows you can be successful in any market environment so long as you are flexible with pricing.”
Not all managers are negative on the environment wider: River and Mercantile’s Philip Rodrigs said he is actively holding cash to participate in future IPOs later this year.
Rodrigs, who runs the £411m River and Mercantile UK Equity Smaller Companies fund, said: “I expect more IPOs towards the end of the year, more than over the summer, and I have faith some of them will be good opportunities.”
