Is Ireland ready for an IPO market?

29 Jan 2004

When popstar Prince sang “Gonna have a party like it’s 1999” during the Eighties, he didn’t realise how prescient his lyrics were in some ways. As a journalist doing the rounds in 1999 it seemed that every second technology company in Ireland fostered ambitions to float their company on the local Irish Stock Exchange (ISE) as well as possibly the New York Stock Exchange or Nasdaq. Those that didn’t foster plans to go public were regarded as odd.

In the intervening years since then many people blush with shame when reminded of their bluster at the time, others shudder and bite their lips when they think about the precious savings that disappeared into long-gone, once-promising star stocks. As a result of the dotcom collapse and the even bigger communications industry meltdown, technology in general became the whipping boy of the protracted industry downturn that began in 2000 and is still with us today.

The ISE, which spawned many dual initial public offerings (IPOs), witnessed this downturn in the harshest sense. In the three years since the downturn took hold, some 30 stocks have delisted and no companies have opted to go public on the ISE since 2000. The ISE was also influenced by the global enthusiasm for dotcoms and tech stocks and in September 2000, at the height of the dotcom boom, introduced the ITEQ, Ireland’s own technology index. At its launched it proposed having some 40 technology companies, but only accrued eight companies in the end with a capitalisation of €800m. Following the management buyouts of Alphyra and Riverdeep, there are only six companies left on the ITEQ, which has a possible €500m capitalisation at most.

In recent weeks, the CEO of the ISE, Tom Healy, optimistically estimated that up to five companies could list on the exchange this year, bringing an end to the three-year dry spell. Speculation in the business press indicates that possible contenders for an IPO include Aer Lingus, National Toll Roads, Eircom, Jefferson Smurfit and Cantrell & Cochrane. While stating that the ISE sees much potential in future technology stocks, Healy played down expectations of an imminent technology IPO.

While internationally, anticipated flotations by players such as Google and herald a return to internet stocks, it still seems too early to be considering future flotations in the home market. This view is driven by the fact that the private equity market, often seen as a rival to the public equity market in terms of attracting pension funds to invest, is still conservative about investing in technology companies.

If technology companies don’t get off the ground through successfully attaining venture capital (VC) investment then why should a technology flotation seem at all possible?

The recent TechPulse quarterly analysis by Ion Equity surmised that 2003 was a disappointing year for the Irish technology sector with venture capital investment falling 44pc to €154.4m. Current levels of investment are in stark contrast to the €627m invested in 2000. These poor results were driven by exceptionally weak investment activity in the final two quarters of 2003. Investment fell to €20m in each of the third and fourth quarters, the lowest levels since 1998. These quarters fell by 77pc and 55pc from the respective quarters in 2002.

Ion Equity director Ulric Kenny said that the fall in Irish technology VC investment corresponds to a general decline across both Europe and the US, but less sharply than the European and US experience. “At €20m a quarter, we believe that Irish technology investment has reached a floor level and expect an improvement in 2004,” he adds.

Kenny anticipates that there is unlikely to be an immediate rise in investment activity, with the first two quarters of 2004 remaining at around €20m in each quarter. However, he anticipates considerable improvement in the second half of this year. “We expect a recovery in investment levels to be driven firstly by a number of the stronger and newly profitable companies coming to market to raise acquisition finance. We were pleased to advise Network365 on its recent merger with iPIN and expect to see other strong Irish companies capitalise on their positions to drive consolidation in their sectors and become genuine global leaders.

“We are also hopeful that a number of younger companies will hit the necessary milestones early this year and be in a position to raise expansion funding in the second half. Domestic and international investors eagerly wait the next wave of emerging Irish technology companies,” Kenny concludes.

At this rate it is perhaps wise to forget about seeing an Irish technology IPO take place at home or abroad in 2004. At the present rate mid-to-late 2005 might be the most likely time frame.

By John Kennedy