With 38 GCC market debuts, 2021 was the best year for new listings since 2007. Yet, the high volume of listings disguises the reality that only one-third are successful. Specifically, just 38% of IPOs were priced adequately - the majority of companies leave too much money on the table. Only 32% of companies traded within the typically desired share price range of 20% within the first 30 days of going public. And merely 31% of new listings outperform companies that are already listed in the longer term.
These are among the findings of a new report published by Iridium Advisors, entitled “The Renaissance of IPOs in the GCC,” that examines the success rate of company listings and demystifies some common misconceptions about IPO winners and losers.
Iridium’s analysis of 457 initial public offerings in the GCC region between 2005 and 2021 benchmarked companies against three objective criteria of success:
Underpricing: the difference between the IPO offer price and the first-day closing price
Stabilization period: the 30-day period of price stabilization post-listing
Excess return: the relative company share price versus a country index over time
“It is very encouraging to see government-owned and private companies embracing public equity markets in the GCC,” says Oliver Schutzmann, CEO of Iridium Advisors and a co-author of the report. “With a well-thought-out program of new public listings, which is already underway, the region has the opportunity to re-energize its capital markets and attract foreign capital to diversify economic growth. Nevertheless, there is still a big mountain to climb to unlock the true capital markets potential of listed companies for both issuers and investors.”
Companies planning a public listing need to be aware of the high probability of disappointment and ask why this should be the case. Iridium’s analysis has identified three key areas that are commonly overlooked by company owners, directors and senior management that can play a part in improving the odds of success:
The primary market is where shares are issued
The secondary market is where shares are traded
Successful issuers recognize that investors trade among themselves in the secondary market without any direct involvement from the company, and that their company is only worth as much as the last share price.
Pre-IPO investors typically invest short-term
Post-IPO investor usually invest long-term
Companies whose share price outperforms its benchmark after the listing understand that there are different types of investors with varying motivations and interests.
The assumption that PR and IR are synonymous could lead to failure:
The purpose of PR is to generate short-term interest
The purpose of IR is to attract long-term investment
While both Public Relations and Investor Relations have an important role to play, PR features more prominently before and after an IPO, while IR often tends to remain an afterthought.
Schutzmann concludes by adding: “The risk of value destruction is real for private and public sector companies in the GCC preparing for an IPO, SPAC, or a direct listing in 2022. It is, however, not inevitable. Key areas of focus to improve the chances of success are taking a long-term view in pre-IPO preparation, identifying the right type of investor, and developing the capability to create organic relationships with the professional investment community. These three steps can guard against major share price gyrations after a listing and will go a long way to ensure that the region’s companies – and their owners - are rewarded with the right valuation by the market.”
A copy of the report can be downloaded here.