IPO banks seek measure of success
What is the best way to judge the success of an initial public offering? Investors in Rocket Internet probably have a view. They were left counting their paper losses earlier this month, after shares in the German technology company dropped 12.9 per cent on their first day of trading.
But for the banks and advisers that bring companies to market, defining success is less clear cut. Their duty is to help companies drum up demand for their shares, and sell them at the highest price – while also providing investors with opportunities for longer-term returns.
Other investors have said the mixed performance of IPOs in 2014 has vindicated their decision not to invest in them. Aberdeen Asset Management, for example, believes it is simply not possible to carry out the due diligence needed to spot marketing hype from companies and their bankers.
Anne Richards, chief investment officer at Aberdeen, says: “This means we sometimes miss out when the shares skyrocket on day one, but it also means we manage to avoid the companies that turn out to have been overhyped.”
Charlie Foreman, head of European equity capital markets at Lazard, says: “Getting a company to PLC-readiness is a long, complex and sometimes onerous process. It can take a huge amount of management time and be a distraction from the day-to-day running of the business. One of our roles as the independent adviser is to ensure that the transition is as smooth as possible, with a focus on long term success.”
But banks say the advisers can be part of the pricing problem. Banks that have worked alongside STJ claim that it is too aggressive on IPO pricing and operates a “divide and conquer” strategy to running the bank syndicates.
Credit Suisse, for example, rates itself most highly as it is the only bank of the seven in the FT analysis not to have withdrawn a $200m-plus European IPO this year.
JPMorgan prefers to count the number of European IPOs for which it has been appointed joint global co-ordinator – more than any bank this year. This, it says, shows it to be “a victim of its own success” – even if investors in the Rocket Internet IPO, on which JPMorgan worked, are of a different opinion.
Source: FT- IPO banks seek measure of success
