Small cap IPOs stood out from the pack as new ASX listings halved during COVID-19
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HLB Mann Judd’s mid-year IPO report shows only 12 companies made it onto the ASX in the first six months of 2020.
That was down from 23 in the first six months of 2019, which itself was well below the five-year average of 36.
Of those 12 companies, 11 were categorised as small caps (market cap <$100m), showing activity was driven also solely by that sector.
The numbers show a discrepancy between IPO activity and broader activity in Australia’s equity capital markets, which have remained liquid as a large cohort of listed companies rush in to raise cash.
HLB Mann Judd partner Marcus Ohm said the COVID-19 pandemic “has clearly had a significant impact on the IPO market”, with a number of proposed listings set for completion that were ultimately withdrawn.
Of the 12 listings, only three took place in the June quarter as IPO activity ground to a halt in April.
One of those three was health-tech platform Intelicare (ASX:ICR), which pulled the trigger on an IPO raise through the teeth of the COVID-19 crisis in March, and was subsequently able to complete the deal.
While the number of listings fell by almost 50 per cent, the impact of COVID-19 was also starkly reflected in the overall amount of funds raised, as potential suitors put away their cheque books.
A total of just $132m was raised via IPOs in the first half of 2020, down 84 per cent from the same time last year ($823m) and a fraction of the $2.5bn raised in the first six months of 2018.
However, that fall was largely driven by a fall in activity at the big end of town.
“Interestingly, the number of small cap listings remained consistent with the previous period, when there were 13 listings, showing the impact of market conditions on larger cap listings,” Ohm said.
And the small caps that did list typically outperformed, with an average gain of 16 per cent against a fall of 12 per cent on the broader market.
“Furthermore, one-third of new listings recorded a gain of 35 per cent or more by period end, meaning the IPO market did provide some opportunities for investors in a difficult market,” Ohm said.
Looking ahead, HLB Mann Judd expects the macroeconomic uncertainty caused by the pandemic will give rise to a challenging environment for companies with listing aspirations.
“It will be interesting to see the extent of any recovery in the IPO market prior to 2021,” Ohm said.