* British IPOs typically fall below offer price a year on
* U.S. stock market IPOs fare better, boosted by techs
* Global listings market in recovery phase
By Sinead Cruise and Kylie MacLellan
LONDON, Nov 4 Investors wooed by 2013's strong
British stock market listings forget the risks of backing debut
share sales at their peril, as data from the past decade shows
their support is rarely rewarded within a year of companies
Figures from private bank Kleinwort Benson show that on
average UK listings underperformed the FTSE All Share index
in the 12 months after debut in 7 of the last 10 years.
European flotations have proved only marginally better,
lagging MSCI Europe in six years from 2003 to 2012.
Twelve-month performance is the first major milestone
long-term investors look at when considering the success or
failure of any single-stock investment.
Asset managers who invest cash for pension funds and
insurers are among the largest groupings of IPO buyers. They
typically invest with a five-year-plus horizon but some of their
clients assess whether to put new money into funds on the
"It's tough to win in an IPO," Gene Salerno, Kleinwort
Benson equities head, said.
The privatisation of Britain's Royal Mail, now
trading 70 percent above its offer price, was an anomaly in a
market dominated by entrepreneurs or private equity firms who
push for highest possible prices when they cash out, he said.
While most of 2013's European and UK listings were trading
above offer price, performance is being buoyed by overall market
sentiment as well as company specifics, Salerno said.
INVESTORS DO BETTER IN U.S.
U.S. stock market flotations have fared better than those in
Britain and Europe, with IPOs outperforming over the S&P 500
index in six years during 2003-2012, Kleinwort says.
Klaus Hessberger, co-head of EMEA equity capital markets
(ECM) at JP Morgan, said this was likely to be due to the
greater level of activity in the U.S. and because the market is
dominated by technology listings, which often do well.
The larger pool of buyers and the trend for company owners
to sell small stakes on their market debut has also helped to
create a livelier after-market and faster positive returns.
Sam Dean, co-head of global ECM at Barclays said:
"It's a generalisation but...historically U.S. issuers have had
a healthier attitude to IPOs, thinking of them more as an entry
event to the public markets rather than an exit event."
"That's one of several factors which contributed to the
terrible IPO period Europe saw from 2009-2012. But lessons have
been learned and there is a much better approach now from almost
all participants," he said.
In Europe, fast-growing firms have put listing plans on ice
since the 2008 financial crisis began, rather than sell stock in
a bearish market. Many of those who did come to market were
firms running out of funding options as banks withdrew lending.
Kleinwort's data was weighted by market capitalisation,
meaning some years were skewed by unusually large, weak floats.
In Britain, 2011's 30 percent IPO underperformance versus
the index was driven by the record $10 billion listing of
commodities trader Glencore, now Glencore Xstrata.
Glencore accounted for about half of all capital raised from
listings on the exchange's main market that year but it has not
traded above its 530 pence offer price since 2011.
This year's IPOs have so far fared better, with half of the
10 biggest deals trading at least 10 percent above offer price.
Barclays' Dean said 2013 is feeling similar to 2003-2004,
when IPO business had started to pick up after the dot-com
crash. The data showed these were two of the years that British
IPO returns outperformed the index.
Bankers said vendors were pricing sales realistically,
encouraging investors to respond favourably towards IPOs,
carefully selecting which they will back and at what price.
But Jeff Morris, U.S. equities head at Standard Life
Investments, warned that may not last. A dot-com style boom
would return one day, followed by a repeat of the overvalued
sales that preceded the crash, he said.
"Towards the end (of the tech boom), we saw stuff that was
so early stage it simply didn't belong in the public market and
stuff that was so spurious you had to steer clear."