Five Irish IPOs predicted in the next year

6 Apr 2006

Around five or six Irish technology and life sciences companies are forecast to make an initial public offering (IPO) on either the London AIM market or the one year-old Dublin IEX market, or possibly both, as a dual-listing, journalists attending yesterday’s Goodbody Corporate Finance technology investment conference in Dublin were told.

Some 35 Irish companies, including Smart Telecom, Alltracel, ThirdForce and Calyx, are now listed on the London Stock Exchange’s AIM investment market. As well as this some 14 Irish companies have elected to list on the Irish Stock Exchange’s IEX marketplace. Companies such as Getmobile, Irish Estates and Newcourt have opted for a dual AIM and IEX listing.

Yesterday, Goodbody director Mark O’Donovan predicted that in the year ahead at least five or six Irish technology and life sciences companies will aim to float on the AIM and IEX markets to raise funding that will in turn give them currency to acquire other companies or invest in expanding their companies.

O’Donovan said that the market for fundraising for second- or third-round technology companies is looking promising with US fundraising levels continuing to grow with company valuations reaching pre-1998 levels before the markets went crazy, resulting in a major dotcom meltdown that began in 2000. Average technology company valuations in the US stood at US$15m.

Unlike 1998, however, the rate of IPO activity in the US is falling off in terms of companies opting to list on the NASDAQ. This is due the cost of making and maintaining a listing, which is driven by new compliance rules such as Sarbanes-Oxley. “The US IPO market is falling off for reasons of compliance, corporate governance associated with listing and maintaining a listing. A company would need to have US$50m to US$100m in sales and US$5m to US$10m in profit to make a listing viable.”

O’Donovan added that the European venture capital market was growing at an exponential rate compared to 2002 and 2003 following the technology downturn. “The amount of venture capital raised last year reached €36bn, double the amounts raised between 2003 and 2004. This represents a huge amount of money available from investors looking for a return on investment.”

In terms of the amount of money actually invested, O’Donovan said that in the US some €4bn per quarter in US is invested while in Europe €1bn a quarter is invested.

Goodbody’s business development director David Lowe said that a strong trend of mergers and acquisitions in the Irish technology sector will continue, pointing to Tuesday’s US$20m acquisition of Dublin firm SteelTrace. He said that trends of Irish technology companies acquiring other Irish firms will continue, such as PrimeCarrier’s acquisition of Am-beo last year for an undisclosed sum.

Paul O’Connor, a partner with PricewaterhouseCoopers, said that the receptive nature of AIM and IEX for investing in young companies compared with the treadmill of quarterly reports, fickle investors and monitoring by analysts were attractive to up-and-coming companies.

O’Connor said: “Irish, UK and European institutions are less fickle and tend to stay longer with the companies they know.”

He pointed to examples of Irish companies stepping down from listings on the major exchanges and opting instead for developing company markets such as AIM and IEX. “CRH stepped off NASDAQ and is now listed on the New York Stock Exchange. Abbey plc stepped down from a full Irish Stock Exchange listing and opted instead for IEX.”

David Robertson, regional manager for Ireland and Scotland at the London Stock Exchange, confirmed the growing interest by high-growth firms in alternative markets like AIM. “Last year, London stock exchanges took 70pc of IPOs in Europe and 80pc of that was on AIM.”

Deirdre Somers, director of listing for the Irish Stock Exchange, added that the low hurdles required for a listing for high-growth firms seeking liquidity and investment were driving more companies in the direction of IEX and AIM. “For a listing on the IEX a firm need only have a valuation of €5m.

“Companies on the IEX market get more profile and visibility in Ireland than they would elsewhere,” Somers continued. “They get better analyst coverage, which dictates your liquidity and capacity to tap the market and the way your stock will perform. Local analysts track local companies more closely and tend to be more loyal.

“Irish shareholders also tend to be more loyal and don’t run at the slightest hiccup, so there is less volatility on IEX,” Somers added.

By John Kennedy