Will 2011 mark the return of the IPO?
Many thought that 2010 would be the starting point for the large accumulated need for IPO’s. Despite economic chaos in Greece and concern for the other PIIGS countries, risk appetite certainly wasn’t lacking and the stock market delivered very good returns. This was mainly driven by companies reporting fantastic earnings growth.
One might think that this should have provided a good listing environment, but with an increasing number of failed IPO’s many plans to go public were likely postponed.
The question is whether 2011 will mark the change in the trend that many have been waiting for. If you believe the new head of private equity firm IK Investments’ Swedish activites, Helena Stjernholm, it will probably not be so. In an interview in Dagens Industri (in Swedish) says she “Certainly there will be new companies on the stock market this year, but I do not anticipate a rush directly”. For obvious reasons, investment bankers seem to be a lot more positive.
Whether a company chooses to initiate a listing process, a pure sales process or a combination of both of these (so-called dual-track process), it is important to timely review the company’s messages and communications.
From an investor perspective it is important to in a credible and understandable way to answer the following questions with a clear YES:
• Do I understand what the company does?
• Do I understand how the company makes money?
• Do I understand the company’s accounts?
• Is management honest and working for all shareholders?
In its simplified form, these questions are the basis for Warren Buffet’s investment principles, and are of course valid also for listed companies.
For IPO’s to gain momentum in 2011 the prospective candidates should be able to answer yes to these questions. Can your company do that?