The Thing Is: Flotations

'The money is out there but investors won't write out a blank cheque'
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The Independent Online

After one of the most depressed periods in the London market's recent history, initial public offerings (IPOs) may be making a comeback. Last week, one year after its first attempt to float was pulled, directory business Yell said it was trying its luck again. The idea is to get the £2bn flotation away quickly, meaning the shares could be trading on the FTSE 100 by the end of the month.

If nothing else, the decision is one of the first votes of confidence in equity markets for a long time. Last year, a raft of companies pulled floats, put off by the volatile market conditions. These included DIY chain Focus Wickes, Irish drinks group Cantrell & Cochrane and Italian fashion house Prada. But since the end of the Iraq war, the FTSE 100 has been on the up, and investors are now thinking of more bullish times.

The question now is who will follow Yell's lead. Companies are certainly talking to their advisers again. Viswas Raghavan, JP Morgan's co-head of equity, capital and derivative markets, says: "At my group, the level of dialogue and activity is higher than it was 12 to 18 months ago. There are definitely strong signs of IPO recovery." Investors back this up. Private equity house Candover confirms it is seeking to turn some of its investments into IPOs, although it remains tight-lipped about which ones.

Most prefer to take a wait-and-see approach before committing themselves once more to the choppy market waters. Prada is understood to have no plans to float this year, for instance, although a spokesman says the company still wants to go public, ideally in the second half of 2004.

Hardly a deluge, is it? That, however, is the point of this re-emerging IPO market. The heady, and often downright ridiculous, days of the dot-com boom are long gone and will not be back. Too many people got burnt and lessons have been learnt the hard way. This time round, investors will have to be presented with the strongest of business plans before they even think about putting their head above the parapets.

Insurance, for example, has been attracting investor attention because it has benefited from a growth in premiums. Reinsurance group Benfield is one of the handful of IPOs to have got away this year already. But broker Heath Lambert, which had its float pulled last year, is unlikely to attract the same level of attention. One senior corporate financier says: "It's only the very best that get away in this market."

In other words, doesn't stand a chance. And this time the City is not going to be swayed.

As Mr Raghavan puts it: "It had better be a damn good story and a compelling equity picture for investors to be chasing this in their droves again. The money is out there but people are just not going to write out a blank cheque."