Expert View: Markets are moving

By Jonathan Morris, June 4, 2009

As we have become engrossed in stories of duck islands, moats and the “flipping” of second homes of late, the idea of floating a company on one of the public markets has seemed somewhat far-fetched by comparison.

However, there are some encouraging signs that the so-called “IPO market” (IPO stands for Initial Public Offering) is gearing itself up again for new business.

Since last summer, the news from the stock market has been dominated by failing investment banks, plunging share prices and a stampede of companies heading for the exit sign marked “delisting” — the number of companies on AIM has shrunk from 1,694 in December 2007 to 1,455 at the end of April 2009.

But the successful initial public offering of Nick Leslau’s property investment company Max Property Group, which raised £200m earlier this month, coupled with the flotation of several companies on the US markets, has led to growing talk within the City that the markets are beginning to re-open.

If this is correct, then there is likely to be a large number of privately-held companies from the UK and elsewhere which will be keen to access the cash that a move to one of the public markets can offer.

Before we start cracking open the champagne again, perhaps a few words of caution are needed. Even assuming that the worst, as far as the markets are concerned, is indeed over, the lead time for IPOs is at least four to six months. When one also bears in mind that the summer holiday period is just around the corner, it is difficult to envisage a rush of flotations before the last quarter of 2009 at the earliest — the beginning of 2010 seems a more likely prospect.

Further, given the extent of the financial turbulence we have seen, UK fund managers are likely to be very cautious about the investment risks they take. For this reason, they are, at least initially, likely to focus on domestic companies with a strong track record of growth and a highly experienced management team. Companies from abroad, particularly from emerging markets, may therefore find it hard to attract investors.

Finally, the reputation of AIM has undoubtedly suffered. If we are to witness another boom in firms listing here, the Financial Services Authority and the Stock Exchange will need to give careful thought as to how to make AIM seem attractive again to companies and investors alike.

Jonathan Morris is a Partner at the City law firm Berwin Leighton Paisner LLP

Last updated: 11:00am, June 4 2009