COVID-19 & IPO outlook

Public markets moved quickly to provide capital to help fundamentally sound businesses trade through the COVID-19 tsunami. As a result, London equity markets have been busy, as corporates seek to address liquidity issues. Management teams of already listed businesses have been able to do this through virtual roadshows. They have the advantage that shareholders already know their stories and the individuals they are being asked to support. Regulators have also shown admirable flexibility in facilitating accelerated issuance.

But what of the outlook for IPOs where management teams and business models are not so well known, if at all? Markets have experienced strong headwinds – but valuations are recovering, reflecting improved investor sentiment. Of course, this may be interrupted by the much feared ‘second wave’, but as things stand there is a post summer opportunity for those “oven ready” to list. We have seen many transactions postponed and pushed back into 2021. However, for those that are ready to move, the autumn could see a flurry of activity (although secondaries are still likely to dominate).

New issuers will need to be able to demonstrate a robust business model over H12020 and one that is resilient to any future COVID-19 related potential shocks. This points to an increased investor appetite for technology stocks, where development and trading will have been accelerated by recent events rather than thrown off track. Any business that is not exposed to physical transactions will be of interest. E-commerce play The Hut Group has confirmed commitments from Blackrock, Janus Henderson, the Qatari Investment Authority and Merian for more than half of the $1.2 billion being raised from listing 20 per cent of the Company. Admission to the LSE is expected later this month and will be its biggest IPO since 2013.

The outlook for global issuance also looks more positive, as Governments continue to provide economic stimulus and central banks inject liquidity into economies. These factors provide a positive backdrop for global issuance in H2 2020. This has already been reflected in higher levels of activity in Asia-Pacific markets, which looks set to gather momentum in H2 2020. Of course US Presidential elections, Brexit and continuing geo-political tensions could intervene to slow this down as investors avoid risk.

The roadshow has been the cornerstone of IPOs from time immemorial. At the end of the day, investors are being asked to back a management team and like to see the whites of their eyes. This simply isn’t possible at the current time and will make it doubly difficult for new issuers to attract new investors. However, overall investor sentiment and the IPO pipeline looks a lot more positive than many predicted in the dark days of March.