(BFM Bourse) – Of all the small and medium-cap IPOs since 2021, only a handful of companies have since managed to post a positive performance. Market conditions are certainly not conducive to the emergence of new companies on the stock market. But to sum up the success of an operation solely to the stock market weather would be very simplistic.
Already in decline last year, the IPO market has far from emerged from its torpor since the start of 2023. At the end of March, less than 300 companies – 299 exactly – had entered Stock market in the world against 326 last year, a drop of 8%, recalled EY in its last count.
But it is above all the amounts raised that have taken the brunt. All of these new companies raised only $ 21.5 billion, or 61% less than in the same period of 2022, according to this same barometer of the global IPO market.
The market context is still not conducive to a renewal of the rating. The lack of visibility induced by current market conditions has indeed limited initiatives in this area. The bankruptcy of Silicon Valley Bank and the sudden collapse of Credit Suisse sent shock waves through the financial markets in March. This episode thus heightened investors’ concerns about interest rates and inflation, and further complicated already precarious IPO plans.
But to sum up the success of an operation only “under market conditions” would be simplistic. The conditions offered to investors and compliance with the promises made when the operation was announced are as important, if not more, than the stock market weather that prevailed at the time of the IPO.
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A credible stock market story to tell
An IPO is not a trivial operation for a company. It is even an important stage in his life. To approach this milestone in the best possible conditions, promising companies have integrated Euronext TechSharea program launched by the pan-European operator for innovative companies wishing to embark on the stock market adventure.
This training program is thus structured around several modules, which allow companies to address topics such as the construction of an ‘equity story’, i.e. the stock market story to be told to investors, the valuation of a company, understanding investors’ expectations, good practices in terms of financial communication, corporate governance and post-listing obligations. The aim is to negotiate this key stage as well as possible for these fast-growing companies which plan to arrive on the financial markets within 12 to 36 months.
At the time of the IPO, the company must indeed offer investors a clear vision over 3 to 5 years, recalls Nisa Benaddi, partner at EuroLand Corporate. To maximize the chances of a successful stock market story, it recalls that companies must take care to announce a clear development project on a buoyant market segment which is supported by an involved management, including the capital. And the more the promises made at the time of the IPO are kept, “the more investors will maintain their confidence in the company, even strengthen it, and new ones will join the capital”, recalls the specialist.
Conversely, it is necessary “absolutely to avoid overvaluing the company, especially since this implies very, even overambitious projections” and to oversell the prospects, by rather keeping the margin “so as to positively surprise the market” , adds Nisa Benaddi. On the other hand, companies wishing only to go public to finance their operating cycle without a clear vision will be clearly ousted from the choice of investors.
The Florentaise society made the bitter experience of it. Short of liquidity and very indebted when it came to the door of the Paris Stock Exchange, the specialist in low-carbon soils finally raised less than expected last April. Moreover, it has not produced forecasts for the years to come, only for 2027. A precarious financial situation and a lack of visibility which have surely put off small investors from participating in the Florentaise adventure. Moreover, the report is without appeal: the subscription of the small carriers to this operation represented 6% of the total offer.
In pain and with the support in disaster of institutional investors, the Florentaise company joined on the wire the specialist in learning to drive online Lepermislibre which had taken its first steps on the Paris Stock Exchange last February. These two companies have shown the way to the Bordeaux group Mon courtier énergie, which took its first steps on the stock market this week.
Only a handful of companies quote above their IPO price
Since January 2021, a total of nearly 50 small and mid caps have listed on the stock market, recalls Nisa Benaddi. And the record, since then, is not very flattering. Only 5 companies in this universe quote above their introductory price, ie around 10% of companies, specifies the specialist.
Among the stocks that have won the support of the Stock Exchange in recent years, we can mention the specialist in solar trackers OKwind, whose price has appreciated by nearly 130% since its first stock market launch in July 2022, a large part of which of the increase (80%) was achieved in 2023. On the other hand, on the side of the values - and it is the major part of this sample – which suffers the blow, the picture is much less rosy with declines ranging from -0 .5% for the most resistant to… -95% for the big disappointments, AMA Corporation not to mention it.
To simplify the following chart, we have chosen to focus only on companies that have made a public offer and to exclude private placements and direct listings.
Changes stopped at the close of 06/1/2023
If we narrow the magnifying glass only on the IPOs of the year 2023 in Paris, namely the Lepermislibre and Florentaise, the results are not very engaging. Shares of both companies have fallen more than 20% since their IPOs. With regard to My Energy Broker, it will be given a little more time to reconsider this operation on the occasion of a future assessment, the company having made its first stock market steps on Wednesday.
“Any disappointment can generate investor mistrust and create the conditions for a gradual fall in the share price. In such a situation, it will be more complicated for the company to attract investors, or even to raise funds under good conditions. “, abounds Nisa Benaddi.
“If we look at the IPOs that have taken place in recent years, 5/6ths of companies are trading below their IPO prices, which tends to show that they entered the stock market at too high a price. And the more you beings small, the greater the probability of experiencing a drop after the IPO”, specified Pascal Quiry in a previous article devoted to the underperformance of small and mid caps on the Parisian market.
Despite everything, the stock market remains a great way for companies to finance themselves. However, the “market conditions” – systematically called into question when the operation does not succeed – do not in themselves summarize the failure or the success of an operation. It is indeed the conditions offered to investors (requested valuation multiples) that ultimately guarantee or not the success of the project.
Sabrina Sadgui – ©2023 BFM Bourse
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