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Minter Ellison

Fast and furious ‘take private’ action in FY2016 while IPOs hold their own in Equity Capital Markets

5 mins 50 secs  22.11.2016
The Australian IPO market remained robust in FY16 with some bright spots ahead for 2017 according to the MinterEllison Directions in Equity Capital Markets Report 2016 released today.
  • Investor appetite for quality assets continues
  • IPOs robust with 7 raising +$300 million
  • Increase in competitive IPOs/trade sales
  • Launch of the first corporate bond
  • Active ECM market predicted for 2017 with possible Chinese investment

    The Australian IPO market remained robust in FY16 with some bright spots ahead for 2017 according to the MinterEllison Directions in Equity Capital Markets Report 2016 released today.

    MinterEllison partner and equity capital markets expert Daniel Scotti said this was significant, particularly considering the continued volatility in Australian and global financial markets and the impact of both Brexit and the U.S. presidential election.

    "Despite some economic headwinds, the IPO window has remained open over the past 12 to 18 months, with continued investor appetite for appropriately priced and quality assets that would deliver strong yields," said Mr Scotti. "We saw some stand outs in the technology and innovation sector, healthcare, and food and agriculture."

    He noted that while FY2016 saw relatively few IPOs from large-caps there was still good volume at the small and mid-cap end of the market – largely in the technology sector.

    "With the flurry of IPOs undertaken over the past few years, it was also notable that the market saw a number of take-private transactions within a relatively short space of the company being listed," said Mr Scotti.

    "We expect this trend to continue. It may lead to a greater volume of IPOs, with vendors who may have been considering a trade sale pursuing an IPO instead in the first instance – and a take-private down the track."

    He cited Vitaco and Affinity Childcare as two recent examples of this trend.

    The Dick Smith collapse was also a milestone in the 2016 financial year. Mr Scotti said it resulted in some reshaping of the Australian IPO market.

    This could mean increased pressure on private equity-backed IPOs to demonstrate to the market a more compelling investment thesis and a market-led requirement for sponsors to retain a bigger investment in a company post-IPO.

    "However, while market sentiment may have been low following the collapse of Dick Smith, there were also a number of bright spots seen in successful private equity-backed IPOs, including Tegel, GTN and Motorcycle Holdings," Daniel Scotti said.

    MinterEllison equity capital markets and bonds expert James Hutton noted that FY2016 also saw the secondary capital raising market accelerate significantly following a lengthy subdued period.

    "Although not at the levels experienced immediately following the GFC, the 2016 financial year nonetheless saw a sustained level of large and mid-cap companies successfully undertake secondary raisings, including to fund acquisitions and for balance sheet repair," Mr Hutton said.

    The MinterEllison Equity Capital Markets Report also highlighted other major rights issues, including Mayne Pharma ($888m); Virgin Blue ($852m) – which also included an additional top up placement to a cornerstone investor of $90m; JB Hi-Fi ($394m) to fund the acquisition of the Good Guys; APN News and Media ($180m); and Clearview Wealth Limited ($50m).

    Turning to the corporate bonds market, Mr Hutton noted the issue of Australia’s first simple corporate bond in FY16.

    "Australia's first ASX-listed 'simple corporate bond' may signal more issuance of these new instruments, including in the non-bank financial sector," said Mr Hutton.

    "We note that Australian Unity raised $230m worth of bonds in a highly successful offer. It was the first company to take advantage of new rules to make bond issuance easier for listed corporate borrowers under a simplified two-part prospectus."

    Mr Hutton also said that the new regime offered a way of providing a reusable platform for multiple tranche funding needs for the short and medium term (within the life of the base prospectus) and that there may be further upside in potential time and cost advantages.

    "While the simple corporate bond launch represents an important evolution in the maturing of this market, we do not expect an avalanche of simple bonds in the short term – at least not until Treasury introduces a further round of regulatory reform to give simple bonds parity with equity raising rules (ie, short form prospectuses / cleansing notices)."

Equity Capital Market Sector hotspots


The MinterEllison Directions in Equity Capital Markets Report identifies a number of sector hot spots for 2017, most notably:

Tech & telcos

The TMT sector remained active throughout FY2016 and continued to lead listing volumes by sector, with 12 listings in the first half of that financial year. Transactions such as Apply Direct, TPG Telecom and Link were all successful IPOs or secondary raisings. The sector is expected to continue to provide fertile ground for capital markets in FY2017 notwithstanding ASX's proposed amendments to the listing rules, some of which will impact on early stage tech companies seeking to list on the ASX.

Health

In FY2016, this sector saw interesting new listing entrants, including One View Health Care, the first Irish company to seek a listing on the ASX. In addition, the market saw the largest healthcare sector deal of the year in the $888m Mayne Pharma placement and rights issue. In FY2017, health will continue to be a high priority area for capital markets. In particular, Chinese players are seeking to leverage Australian medical know-how to service strong domestic demand in China and this driver is likely to continue their demand for equity participation in listed health companies.

REITs – with a theme

As in FY2016, real estate investment trusts are likely to continue to make periodic appearances in listings and capital market transactions in FY2017, concentrating around hot Australian sectors – for example, in FY2016 we saw the Gateway Lifestyle acquisition of Tasman and its IPO. This is likely to occur through a combination of expansion plans from existing local players, alongside appetite from overseas operators seeking to internationalise their operations portfolios through M&A and listings. 

Agribusiness and food

There is likely to be ongoing appetite in the market for quality food and agribusiness offerings. These will include both high-end major market players, such as occurred with the Tegel and Vitaco IPOs, and mid-market transactions, particularly as family owned or other privately held assets come to market. Significant dual Australian/New Zealand listings are also likely to feature in this sector, such as the recent King Salmon IPO.

Retail

Good quality retail industry capital raising offerings are still possible, evidenced by successes such as the JB Hi-Fi capital raising in September 2016 to fund its acquisition of the Good Guys.

Infrastructure

While FY2016 did not see any significant infrastructure assets translate into IPOs, this sector is likely to create more opportunities for IPOs going forward (as part of a dual track process or as a stand-alone process). The private sector will continue to be a potential source: Argo Infrastructure was the largest IPO of a listed investment company in Australia in more than eight years and also the first listed with a focus on investing in shares in international infrastructure companies (underpinning assets such as utilities, transport, infrastructure, railways, airports and ports).

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