Porsche, the 91-year-old German sports car maker, seems to have found the fast lane after pressing ahead last week with continental European’s largest initial public offering (IPO) since the turn of the millennium.
The flotation of the company behind the iconic 911 car and Cayenne SUV defied ongoing turmoil on equity markets, as investors fret about inflation, rising interest rates and mounting risks of a global recession.
And while Porsche shares would fall below their €82.50 IPO price on Monday, their third day of trading, they were changing hands for as much as €93.70 on Thursday in Frankfurt.
Oliver Blume, the chief executive Porsche and its parent, Volkswagen (VW), told German business newspaper Handelsblatt this week that he has now directed VW’s other brands – including Audi, Skoda, Seat, Bentley and Lamborghini – to prepare for IPOs as training exercises, saying there is “a lot of potential” in its marques.
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The well-received Porsche deal is unlikely to result in further unit listings in the near future – or kickstart the wider IPOs market, which has fallen off a cliff this year, according to analysts.
However, Euronext Dublin, operator of the Irish stock market, which largely missed out on a stream of flotations globally in the bull run in the past decade that culminated in record $601.2 billion (€609.6 billion) of money raised on IPOs last year, is hoping to be in a better position when markets do reopen, having quietly established an Irish market advisory committee earlier this year to “develop initiatives that would have a meaningful impact on enhancing the attractiveness and accessibility of Irish public markets to Irish companies”.
“The idea behind this group is to bring together different parts of the ecosystem,” said Daryl Byrne, chief executive of Euronext Dublin. “We need to make sure that we have the right environment to incentivise companies to access public capital markets and raise the funds that they need to grow their business.”
The committee comprises executives from Euronext Dublin, Davy, Goodbody Stockbrokers, law firm A&L Goodbody, Enterprise Ireland and US-based Susquehanna. Euronext Dublin aims to approach the Department of Finance and the Department of Enterprise, Trade and Employment early next year with a “tangible” list of requests, based on the committee’s work. “This is not a talking shop,” he insists.
But with Irish stock market exits outpacing new entrants in the past five years, and Euronext Dublin’s IPOready training programme having put 44 companies through their paces since 2015 but only yielding one flotation to date, is a reboot even possible?
Post-crash flotations
IPO activity in Dublin was mainly saved in the past decade by the post-crash flotations of four real-estate investment trusts (of which only residential landlord Ires Reit remains listed), two housebuilders and the return of AIB to the bourse’s main market in 2017.
While 2018 looked at one stage like it was going to be a bumper year for flotations, it turned out be a damp squib.
A planned IPO of industrial property group Core Industrial Reit was abandoned at the 11th hour in March 2018, while the mooted flotations of Paddy McKillen jnr’s pub, restaurant and hotels group, Press Up; property and hospitality player Tetrarch; a homebuilder called DRes; and a retail Reit promoted by US investment firm Oaktree and Dublin-based Sigma Retail Partners were all dropped by the close of the year.
The excuse for most was a bout of market volatility that set in during the second half of 2018. None of the deals have returned to the table.
One of the two companies that managed to list in Dublin in early 2018, commercial property trust Yew Grove Reit, ended up being sold last year, having struggled to secure investor interest to raise money on the public market to grow its portfolio.
Only three companies have come to the market in Dublin in the past four years: Uniphar, the healthcare group that raised €150 million in an IPO in July 2019; Corre Energy, a developer of underground storage solutions for renewable energy that floated 13 months ago; and medtech firm HealthBeacon, which last December became the first IPOready alumnus to take the plunge.
Iseq exits over the same period include office owners Green Reit and Hibernia Reit, recruitment group CPL Resources, fuel forecourt retailer Applegreen and Yew Grove. Mostly were acquired by private equity money.
Aryzta, the Swiss-Irish bakery group, last year scrapped an Irish listing that dated back to 1988, after the group’s centre of gravity moved to Zurich following a boardroom coup. Meanwhile, Tullow Oil will leave the Dublin market this weekend after 33 years to cut costs and red tape as it remains listed in London and Ghana, home of its flagship oilfields.
It follows a slew of Irish companies ditching their Dublin listings a decade ago for the bright lights of London, including conglomerate DCC, sandwich maker Greencore, and Woodie’s and Chadwicks owner Grafton Group.
Meanwhile, many would-be IPO prospects have succumbed in the past decade to the attractions of venture capital, private equity money and trade sales in the past decade, in an era – until recently – of ultra-low interest rates.
Existential questions
For some, the diminution of the Irish stock market – which had been used by the likes of CRH, Ryanair and Kerry to grow into international leaders in their respective sectors – raises existential questions.
“If we believe in the independent Irish Republic and want to allow indigenous companies to grow and expand from Irish bases, we need to give them access to a market for risk capital to achieve that,” said Joe Gill, director of origination and corporate broking at Goodbody Stockbrokers.
Byrne, a member of the managing board of the Euronext group, which also owns the Amsterdam, Brussels, Paris, Lisbon, Oslo and Milan stock exchanges, can only look on in envy at what’s been happening in recent years in Norway, a country of a similar population to the Republic.
Of the 212 IPOs that took place across Euronext’s markets last year, 68 took place in Oslo.
“Our market advisory committee is looking at smaller markets like Oslo to see what are the features there that could potentially be replicated here,” he says.
Some ships have long sailed. While Byrne said that there are about 10 active brokers in Oslo bringing companies to the market, players in this space in Dublin have essentially been whittled down, following a wave of consolidation in the past few decades, to two: Davy and Goodbody. Still, City of London broker Numis’s post-Brexit opening of a Dublin office over the summer, to retain access to EU-based clients, is seen as a welcome development.
Another big feature of the Oslo market, says Petter Hagen, head of investment banking in Norway for Nordic financial group Carnegie, is its “quite large universe of local investors” that also see Oslo as their natural target market.
“While we also have a domestic institutional investor base as in other markets, a key differentiator is the interest and activity from the local family offices and ultra-high-net-worth investors,” he said. “These probably make up a relatively larger component of IPO demand compared to many other markets.”
The Republic doesn’t even have a domestic institutional group these days.
A coterie of Irish pensions and investment groups – such as Irish Life Investment Managers, AIB Investment Managers, Hibernian Investment Managers and Ulster Bank Investment Managers – typically acted as so-called cornerstone investors in IPOs in the 1980s and 1990s, by taking large chunks of the new shares on offer.
However, a triple whammy since then of Irish pension funds being pressed by advisory firms to lower their exposure to Irish equities, foreign takeovers of the main local players, and a general shift by the industry from active stock-picking to passive investment – where funds track stock market benchmarks – has all but killed off this old port of call.
To be sure, the €14 billion-plus Ireland Strategic Investment Fund (ISIF) has had some involvement in IPOs in the past six years, backing the likes of wind and solar power group Greencoat Renewables and venture capital investor Draper Esprit (since renamed Molten Ventures) as they came to market.
Elsewhere, AIB has taken stakes in Greencoat, Uniphar, Yew Grove and HealthBeacon as floated.
But Gill has called for the establishment of a special Irish IPO fund, backed by the State, that would buy 10-20 per cent of shares being issued by flotation-bound companies and help galvanise other investors around transactions. Such a fund could seek to avoid conflict of interest issues or the risk of overpaying by allowing major institutional investors to dictate IPO valuations, he said.
Finlay McFadyen, head of investment banking at AIB, said that “a combination of institutional support from banks like AIB, Government agencies like Enterprise Ireland and ISIF, together with a proactive campaign by Euronext Dublin would help in developing an Irish IPO pipeline”.
While Byrne is reluctant at this stage to outline the specific areas the working group is focused on, he highlights the tax system as an obvious one. Euronext Dublin’s pre-Budget 2023 submission to the Government called for tax incentives to be introduced to allow entrepreneurs to sell some of their own shares in a company as part of an IPO – or at a later date.
“Entrepreneurs and founders are key decision-makers in the decision to IPO a company,” it said. “Although an IPO will support the funding needs and growth of their companies, it should also reward the entrepreneur for the risk they have taken in building the company and recognise that the majority of founders will have paid themselves below-market rates, while bootstrapping the business over many years.”
The submission also called for the introduction of a tax credit scheme to reduce the costs of accessing public markets for small- to medium-sized Irish businesses.
Byrne described the submission as Euronext “dipping our toes in the water” on the taxation supports front. “I think there’s a lot more work to be done there on what taxation policy supports would be impactful,” he said.
To get Ministers on board, Euronext needs to show them why they should care. It’s been eight years since the last economic impact assessment was done on the contribution of Dublin-listed companies to the wider economy.
That report, written by consultancy firm Indecon, concluded that such companies directly employed more than 49,000 people in the Republic and supported a further 48,000 as of 2012. It estimated that the gross value-added contribution of these companies to the economy amounted at the time to €9.5 billion. It put the overall economic impact of the Irish securities industry – spanning stockbrokers to the professional services industry that has built up around the exchange’s international debt and funds listings businesses – at €325 million.
Some observers say, however, that making pitches to Government on tax reliefs is tone-deaf – even if commercially justifiable – at a time when households are dealing with a cost-of-living crisis and the populist Sinn Féin is rising high in opinion polls.
But other IPO market followers see reason for hope.
“One of the challenges the market has had in recent times has been the significant availability of debt funding, private equity and venture capital money in the Irish market looking for deals. But that could be changing,” said Damian Roddy, the new head of Davy’s capital markets division. “With bond yields rising, the cost of capital for these types of investors is rising, which could see more companies opting to raise money in the public equity markets.”
Meanwhile, the chief executive for 18 months of Enterprise Ireland, Leo Clancy, has set his sights on encouraging indigenous Irish exporters that the State body backs to pursue IPOs.
In an interview with the Sunday Times last week, Clancy said: “Every founder I meet now, I have a very direct conversation with. What’s your ambition? How far will you take this company? Will you go to IPO? Will you stay Irish until you become a global leader?”
Still, the parochial nature of the Irish market remains a drawback for many.
“One particular issue for companies in the Irish market is the fact that the limited number of PLCs we have here means that even small companies get much more media attention and scrutiny than similar-sized companies in the UK,” said Roddy.
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