Volatile market conditions which dampened Australian IPO activity in 2018 will continue to challenge issuers and investors in the first half of 2019 before abating for a more promising end to 2019, according to a new report from Herbert Smith Freehills. 

The report, Ready for Launch: The 2018 Australian IPO Review, explains that continued trade tensions between the US and China, Brexit, state and federal elections in Australia and the regulatory fallout of the Financial Services Royal Commission will all test market confidence in the first half of the year.

Michael Ziegelaar, Herbert Smith Freehills Partner and Global Co-Head of Capital Markets, said: “Some IPOs will still try to time the market perfectly for launches, which will be challenging. IPO issuers and investors may have to accept that these transactions will need to have a greater focus on the long term rather than the short.

“However, 2019 is shaping as a classic IPO year where the IPOs occur in the second half, after some volatility has calmed. And once the IPO window does crack open, we expect it will open properly for a solid end to the year.”

The challenging start to the year follows a difficult 2018. The report found that although the 2018 IPO pipeline looked healthy, volatile markets and a complicated regulatory and political backdrop saw a number of highly anticipated listings postponed, including Latitude Financial Services and Prospa Group. Meanwhile, other IPO prospects such as Colonial First State Global Asset Management and PEXA were instead sold via trade sale.

Philippa Stone, Herbert Smith Freehills Partner and global Co-Head of Capital Markets, explained: “Throughout 2018, IPO windows with appropriate conditions for launch were tight due to market volatility at critical times, reflecting domestic and international uncertainty, including as a result of Federal political instability, escalating trade tensions, increasing risk of a no-deal Brexit, the US mid-term elections and the US-North Korea summit, as well as market concerns arising from the day to day unfolding of the Financial Services Royal Commission and expected political and regulatory responses.”

On the positive side, the report found that whilst there were fewer listings in 2018 than 2017, the IPOs in 2018 raised over $1 billion more in capital than the previous year.  

In addition, the acquisition and delisting of a number of large ASX listed entities in 2018, including Westfield, Investa Office Fund, Sirtex Medical, Aconex, Mantra Group and APN Outdoor Group, leaves the field open for prominent new listings in the diminished top end of the market.

Successful listings of larger mining companies in 2018 – including coal miner Coronado Global Resources, manganese miner Jupiter Mines and nickel miner Nickel Mines – suggests that issuers once again see Australian investors as receptive to new large resources stocks. 

Looking ahead, the report predicts that globally, large IPOs in 2019 will be dominated by technology companies, with Uber, Lyft, Zoom, Slack, Palantir and Cloudflare all subject of speculation.

Mr Ziegelaar explained that the Australian tech sector also showed promise: “With the sector continuing to grow and investors becoming more sophisticated, this may be a year where investors are prepared to look closely at Australian technology IPOs and provide opportunities for some home grown talent on the ASX.”

For more information or to get a copy of the report, please visit: https://www.herbertsmithfreehills.com/latest-thinking/ready-for-launch-t...

Herbert Smith Freehills is recognised as Australia’s leading law firm for IPOs by value, and the firm has acted on more IPOs by number since 1998 than any other top tier law firm (according to Connect 4). In 2018, we were ranked the number one capital markets team and were ranked as the number one equity and equity related issuer legal adviser for both value and deal count (Thomson Reuters – Equity & equity-related Issuer Advisers).

Some of the Herbert Smith Freehills team’s recent IPOs include advising:

• Coronado Global Resources on its $773 million IPO and listing with market capitalisation of A$3.87 billion; and
• Macquarie Capital (Australia) Limited and Canaccord Genuity (Australia) Limited as joint lead managers of Marley Spoon AG’s A$70 million IPO and listing with a market capitalisation of A$199.5 million.