The Key to Successful IPOs
The key to a successful IPO is pricing the shares at a discount relative to their peers, Henry Dixon, fund manager at Matterley Asset Management, told CNBC on Wednesday.
The performance of new issues continues to be disappointing because businesses are still looking to list at a premium compared to competitors who are already publicly traded, according to Dixon.
“Unfortunately, there does seem to be a slight situation whereby companies are not that keen on listing at a discount to peers,” Dixon told "Worldwide Exchange."
“I think that is an obvious starting point for a successful IPO, as peers that have been listed for a longer period of time have a greater financial record and they deserve that premium. A discount to that is a method that has worked incredibly well in the market in the years gone by.”
Facebook’s spectacular flop last month has reignited the debate on over-blown valuations. The social network's shares have lost almost 30 percent of their value since their debut on May 18.
A number of companies, including motor-sport franchise Formula One, online travel deals site Kayak Software and PC hardware components maker Corsair, have pushed back their plans to go public in the wake of the social media giant’s disastrous listing.
Dixon believes that, in the current environment of heightened market volatility, companies that want to list their shares have no choice but to radically adjust their valuation expectations.
“I look at the bull market, say 2003 to 2007, IPOs actually outperformed the wider market, and we’ve seen IPOs since 2009, they’ve actually lagged the market quite dramatically,” Dixon said.
“One of the clearest examples of that in the UK would be Glencore’s IPO. It came at a premium to Rio Tinto’s , priced at slightly over 5 pounds ($7.75) per share and today finds itself at 3.50 pounds per share, really, really disappointing,” he added.