IPOing during the pandemic: an inside story
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In terms of the speed and scale of its initial impact on financial markets in March, the COVID-19 health pandemic was almost unprecedented. It also proved to be a pretty difficult time to raise capital.
A number of companies with listing aspirations shelved their IPOs as the proverbial storm clouds gathered.
And by March 23 – the day stocks hit their mid-crisis lows – just one capital raising remained live across the whole Australian market.
Aged-care tech company Intelicare (ASX:ICR) had lodged its prospectus the week prior and the executive team – along with sole lead manager JP Equity Partners – were now on the clock to complete the raise successfully.
By the end of April, the team had successfully completed a $5.5m raise that was oversubscribed, and Intelicare is now waiting on an official listing date from the ASX.
Stockhead spoke with JP Equity managing director Jason Skinner and director Nic Brownbill about running an IPO raise that became the talk of the market.
“Our initial plan was to lodge the prospectus in mid-March. But by the start of March the initial shocks started coming through, so we decided to delay lodging by a week,” Skinner said.
“We figured there were more shocks in store, but there was a day or two in that period where markets steadied so we thought we might have a window.”
Brownbill explained that the decision largely came down to whether Intelicare’s business case was strong enough to withstand a volatile market.
“At that time the team and advisors came together and said, we have a call to make –whether we do what other companies are doing and defer, or back ourselves that the macroeconomic tailwinds for this business are strong enough to withstand what’s going on in the market,” he said.
Having made the call to push ahead, they then faced another round of huge market dislocations as the crisis took hold in earnest.
The offer went live on Monday March 23, which also happened to be the day markets hit new lows following another selloff.
“We thought – ‘OK, that timing didn’t work out great. But we’re out there now, we might as well just go for it and present the opportunity’,” Skinner said.
“We hit ground running but couldn’t get hold of any brokers. Then soft bids on our internal book started to withdraw as well. Based on our February roadshow alone we could’ve filled the book with the amount of interest we got, but those bids started disappearing.”
What followed was a lot of phone calls and a few sleepless nights watching US stocks, as markets awaited a positive catalyst while governments and central banks carried out emergency response measures.
Skinner said that as part of a typical raise JP Equity would allocate around $1m to broker funds to help with the spread.
But this time, broker phone lines had gone quiet “and the ones we could get a hold of said ‘no’”.
“So we started ringing through our client base and going through with the original plan, but it was a lot harder with all the volatility,” Skinner said.
“But to our client’s credit, across the investors on our books we managed to get over the halfway mark to the target raise from our client base alone, which we were happy with.”
A key feature of the raise was that individual investor amounts were smaller, because funds were facing downside pressure on their own portfolios.
“[However] we ended up getting over 500 investors bid in to the book. I’ve never had that many names in an IPO,” Skinner said.
“So everyone wanted to dip their toe in, but they were also a bit battered and bruised [from the selloff],” he said.
As the raise progressed, senior staff did their best to communicate with the team and adjust on the fly as new information came to light.
“While the offer was live, new information was coming out,” Brownbill said.
“For example, the Morrison government was urgently looking at ways to reduce patient risk in aged care. And Intelicare’s product is a tech solution that can provide direct assistance and support for this exact situation.”
“So we adjusted our pitch, and straight away people could resonate and see the benefit of the product in an environment like this.”
“At the same time, there were new developments among potential B2B customers and discussions started progressing faster, which gave us more confidence to keep pushing.”
Skinner added that most raises take place with everyone in the same room, bouncing ideas off each other and providing support – advantages that are lost when working remotely.
“It was a whole new experience. we’ve done a lot of raises over the years, but we’ve never done it with everyone sitting in their own house.”
“I called the team once a day, as did Nic, just to say ‘how are you going, have you thought about it this way etc. Sometimes you can be stuck with the blinkers on but it’s important to continually refine the pitch,” he said.
“It was a challenge to maintain the morale while some of those ‘gloom & doom’ headlines were going on,” Brownbill said.
By the beginning of April, the team had managed to cross the halfway mark for the raise, but market conditions were still tough.
By then, some cap raises had commenced in the small-cap space but only for listed placements, not IPOs.
Then on April 16 the team got a big boost when medical company Atomo Diagnostics (ASX:AT1) broke a six-week IPO drought with a strong debut.
“It was a 20c listing and they opened at 50c with strong volume, so that helped negate the idea that this wasn’t really an IPO market,” Brownbill said.
“Coming into that weekend, we had just under $2m to go on the book,” Skinner said.
“And by Monday lunchtime we had offers for more than $6m. Then by close of business on Monday it all came in a big wave, sentiment just flowed back in.”
On Tuesday morning, the team initiated a soft close where they put a pause on new applications, to give them time to go through the list and get names checked off for the spread.
“It was good we did that because we kept getting interest come in, so we could’ve kept it open and built momentum with an oversubscribed round,” Skinner said.
“But we thought while funds were there we should accept and close it. We saw COVID-19 stocks on the market were outperforming, so we thought ‘this is our window to do it’.”
Having “weathered the storm” through some of the toughest market conditions in recent memory, Skinner said Intelicare now has a chance to take advantage of a unique market opportunity.
“In many ways it’s a testament to the quality of the business itself, that it was able to generate interest in such a tough market,” he said.
“The exciting part for us now is that Intelicare is now fully capitalised to execute on their business plan.”
“The market is primed because they’ve never been funded like this before. And the COVID-19 situation has really highlighted the need for this type of technology in the aged care sector.”