City told to brace for a wave of stock market flotations

Fears of hung parliament led to delays in plans to raise capital, say experts

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The Independent Online

Investment banks across the City are preparing for a wave of stock market flotations and takeovers following last month’s general election, experts have claimed.

Sophos, the £1bn cyber security firm, and the Irish house builder Cairn Homes became the latest to join the queue of companies planning to raise money on the London Stock Exchange this summer.

Market experts said that the Conservative Party’s shock victory led companies and their advisers to dust off plans that were put on hold in the lead up to the vote.

“A number of businesses chose to delay their plans for raising capital – either by way of an initial public offering or through merger and acquisitions – pending the result of the election and fears of the implication of a hung parliament,” David Vaughan, at the accountancy firm EY, said. 

“The definitive outcome has, however, given businesses a greater level of confidence and certainty, with the result that both equity markets and M&A deals have picked up significantly. We are seeing businesses accelerating their plans to float. Deal pipelines are strong and once through the summer, we expect to see a high level of completed transactions.”

According to figures from Dealogic, there were seven stock market flotations last month, compared with two in April and 11 in May 2014. At least 11 firms have unveiled plans to float since the general election and this figure is expected to grow over the coming months.

Dan Nickols, of Old Mutual Global Investors, said: “I think we will see an uptick in IPO activity over the balance of the year. With election uncertainty out of the way and with a business-friendly majority government in place, investor risk-appetite should remain firm. Anecdotally, investment banks do have a pipeline of flotations in preparation, and contrary to popular belief, a lot of 2014’s IPOs performed very well.”

Seven investment banks are involved in the flotation of Sophos, the cyber security company founded by two Oxford graduates in 1985, which is expected to be valued at about £1bn when it comes to market in July.

Sophos hopes to raise £100m by going public, having shelved a previous attempt to list in 2007 because of the global financial crisis.

The company is majority owned by private equity giant Apax, which paid $580m (£380m) for a 65 per cent stake in the group five years ago. Its founders Jan Hruska and Peter Lammer, who reportedly made $300m from that deal, still own about 25 per cent.

Its chief executive, Kris Hagerman, said: “Protecting against IT security threats is a pressing and urgent global need, and nowhere is that more evident than in mid-market enterprises. You can’t open any publication at the moment without reading about a cyber-attack or breach – it’s the number one priority for every IT executive.”

Sophos plans to use the money raised from the listing to pay down its net debt, which stood at $318.8m at the end of April. The group has 2,500 employees across the world, including 500 in the UK, and focuses on mid-market enterprises. Its customers also include the BBC and the NHS.

Cairn Homes meanwhile unveiled plans to raise up to €400m (£287m) from its float. It will become the first Irish construction firm to go public since the country’s property meltdown in 2008.