James Moore: Coming soon to the stock market: a rush of cheap as chips flotations

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The Independent Online

Outlook Time for a revival of the IPO market? The City, starved of its beloved fees, is desperately hoping for signs of green shoots, but every time they seem to be peeping through the hard earth they get choked off by another frost.

The freeze isn't total. Companies are being brought to market, even relatively shaky propositions such as Ocado. But that should probably be seen as a special case, not least because of its attempt to court retail investors (who get shut out of the really good flotations). More regular floats have been successful only when companies with good growth stories have been sold cheaply.

I highlighted in this column earlier this week the way British institutions appear only too willing to sell the family silver for a song. Predators know that if they can secure a board recommendation for their takeover bids, then shareholders will likely cave in. Half the time, they don't even need that.

Fund managers have, though, at least got wise on the other side of the equation. Investment banks used to operate like Avon ladies. They'd knock on the doors of their regulars and know they'd get a sale for their private equity clients, even if some of their wares were a bit, well, pricey. Their fund manager mates could be relied upon to see them right.

No longer. Those same fund managers have got all discerning. They've become just a tad huffy about being taken for a ride by their richly remunerated colleagues in private equity.

The game that was played in the days before the financial crisis showed the fund managers who look after our money in an incredibly poor light. Private equity firms took companies off the stock market on the cheap, loaded them up with debt and sold them back to the same people at vast profits to themselves. One positive consequence of the financial and economic turmoil of recent years is that this little game is no longer being played.

Which leaves the private equity players in a bit of quandary. There's only so long you can play pass the parcel by selling your assets to other private equity firms (and buying theirs off them). Trade buyers can sometimes be found, but not easily given how skittish they are over the economy.

Which leads back to the stock market. The private equity firms will have to come back, perhaps sooner than people think.

The likes of New Look and its ilk will return to the IPO market because there's nowhere else to go and financing is prohibitively expensive. The sort of terms available to fund leveraged buyouts during the boom years have disappeared, probably for good.

Asset managers might still be willing to sell cheap to give their funds – and their bonuses – a short-term boost. But they'll only buy from the bargain basement. And while the shelves there are bare at the moment, they are likely to start filling up again quite quickly.

Flotations are coming back and prices will be keen. Savvy investors should get in at the beginning.

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