Fall in non-mining IPOs

Initial public offer activity for the non-mining sector in Western Australia appears to have come off last year’s highs, with the lack of growth in the small- to mid-cap floats suggesting some companies are looking elsewhere for funding sources.

According to Pricewaterhouse-Coopers’ annual sharemarket float analysis, released this week, 19 non-mining WA companies listed on the Australian Securities Exchange during the 2007 calendar year raising a total of $639 million, compared with last year’s raising of $1.2 billion.

WA IPOs accounted for about 21 per cent of non-resource related IPO activity in 2007, compared with 28 per cent during 2006.

More than three-quarters of the total capital raised by WA floats in 2007 was achieved by the five largest floats – NRW Holdings Ltd, Brierty Ltd, ThinkSmart Ltd, Plan B Ltd and Southern Cross Electrical Engineering Ltd.

PricewaterhouseCoopers partner and head of corporate finance in Perth, Angel Barrio, said floats involving businesses that serviced the resources industry was not surprising given the continued strength of the resources-driven economy.

“I’m not surprised to see a lack of companies of [the small to mid cap] size listing in WA, given the increasingly high demand for them by both national companies looking for a WA presence and private equity groups looking to invest in the WA economy,”  he said.

Larger cap floats appeared to achieve higher pricing premiums than the small to mid caps, with the five largest IPOs on average realising a 47 per cent return since listing.

The smaller WA listings, by comparison, lost on average about 20 per cent of their market cap since listing.

The results appear to reflect investor confidence in large caps stocks, which are generally viewed as a more established, less volatile businesses, with less risk.

Mr Barrio said the poor performance of the smaller WA listings may also be indicative of these companies failing to fully capitalise on growth opportunities due to their inability to readily attract labour in a highly competitive market.

While 2007 was characterised by strong investor demand and a robust economy, it will also be remembered as the year the US-led sub-prime credit crises awakened the market from its aggressive pricing of risk, the PwC report says.

IPO activity is expected to soften in 2008, as some companies delay their listing plans until a clearer picture of the full impact of the global credit crunch on the domestic economy emerges.