A new vintage

Liquidity inflows from central banks, the end to risk-free yields and caution by traditional banks has finally ended up attracting companies looking for financing on the stockmarkets.

With more than €30bn in funds raised since the beginning of the year in western Europe via 120 operations (ELIOR, WORLDLINE, ISS, APPLUS…), IPOs are staging a huge come-back in virtually all business sectors. From risky projects in the biotechnologies sector (GENTICEL, TXCELL, THERACLION) to more mature companies in traditional sectors (EURONEXT, STABILIUS, SCANDI STANDARD), 2014 is already a good vintage for investors who are still delighted to welcome new projects.

However, as in the wine industry, there are good and bad years for these operations! Contrary to preconceived ideas, IPOs undertaken in difficult markets have enjoyed outstanding performances in recent history. At end-June 2014, companies that were floated during 2004 (a year of market recovery throughout the world), have enjoyed average performances of +105.7%, in line with the performance of the 2010 cuvée (+67.8%). Among the most successful examples, we would highlight ILIAD (parent company of FREE), which has rocketed +1350% since its arrival on the market in 2004, as well as Spanish group AMADEUS (+180%) and German company BRENNTAG (+177%), both new arrivals in 2010 that rolled out their initial projects remarkably well.

In contrast, stockmarket performances for the IPOs undertaken during peak cycles have been generally disappointing, as shown by the 29.6% decline for the 2007 vintage. At the time, investors were batting their eyelashes at the renewable energy sectors and were prepared to finance all of these projects with closed eyes. The majority of the companies have since gone bankrupt (Q-CELLS and SOLON in Germany) or had disastrous stockmarket performances such as THEOLIA (-90%) in France. When cash becomes too easy, companies and investors lose their lucidity and projects that are overly in debt (AIR BERLIN -90%, REALIA -75%) or excessively valued (Spanish press group VOCENTO -80%) end up producing spectacularly negative performances.

Caution, objectivity and good sense must therefore remain the major guidelines for assessing these new and always promising recruits. Among the particularly useful lessons learnt from experience, it is always essential to question the management team’s long-term vision for the project and the objective reasons for a flotation, while not forgetting obviously, to ensure ourselves of the extent to which management is interested in the success of their project and the amount they have invested in the capital alongside new shareholders.

Numerous IPOs have created outstanding stockmarket stories such as BENETEAU (1984), EUROFINS SCIENTIFIC (1997), GEMALTO (2004) and more recently NUMERICABLE… These successes all have one point in common: their visionary managers (Gilles Martin at EUROFINS SCIENTIFIC, Olivier Piou at GEMALTO) and shareholders (Annette Roux for BENETEAU, Patrick Drahi, owner of NUMERICABLE) who have managed to transform the groups into sector leaders.

The financial markets have played their role of accelerator and facilitator perfectly well for these management teams who very early on identified their projects, markets and targets and who all have one very clear vision of their future.

Eric Tabarly stated that “Confidence is a major factor: without it no project succeeds”. We would add that an IPO is a long-term contract that requires a good deal of confidence on the part of investors, but above all consistency on the part of these new stockmarket projects and their skippers!

Didier Le Menestrel