Published January 3, 2023, 4:42 pm
Buying shares of the company at the time of their IPO is far from good business: you have a one in four chance of realizing a capital gain, or simply recovering your bet. This is what a study carried out by Pascal Quiry, professor of finance and co-author of Vernimmen , this management manual is considered the bible of corporate finance. Of the 139 companies that have taken their first steps on the Paris Stock Exchange since 2014, only 23% are priced above their IPO price. And again, this calculation does not take into account companies whose prices have been suspended, or which have been reset to zero due to bankruptcy.
“Unsurprisingly, the older the public listing, the greater the probability of being priced above the IPO price. Therefore, half of the companies whose share price is in the green were introduced in 2014-2015, thus giving time,” explains Pascal Quiry.
Among the best performing stocks compared to their IPO price are Euronext, which entered the financial markets in June 2014 (+247%), Worldline (+152%) or for small caps, Focus Entertainment (+305% since February 2015).
Performance depends on size
Performance depends a lot on size: 93% of companies whose price is lower than the introduction price capitalize less than 500 million euro. By contrast, companies capitalizing more than $500 million, accounting for just 12% of IPOs by number, account for 30% of those whose price has progressed, the study indicates. Since 2014, the CAC Small index has nevertheless increased by 91%.
“There’s a real problem with introducing small businesses,” Pascal Quiry insists. How can this dichotomy be explained? Big IPOs that come into the spotlight are scrutinized, first by the IPO bankers, then by the financial analysts who rate the company.
“For microcaps, professionals are less attentive to the intrinsic characteristics of candidates for listing,” explains Pascal Quiry. A phenomenon that would be amplified by the amendment of the Prospectus regulation in 2018, which allows companies that raise very small funds, less than 8 million euros, not to ask Visa for the Autorité des Marchés Financiers (AMF).
“The information that is then released by the IPO candidate company is not scrutinized by the stock market watchman as usual,” acknowledges an investment banker. Quite often there is only one financial intermediary carrying out the usual checks against two, three or even four banks for MFA visa transactions. “The monitoring of financial analysts, when it exists, is reduced to a single actor, which limits the scope of consensus and forward-looking information needed for price formation in the post-IPO market,” continues the banker.
Of the new 2022 stock market entries, only Euroapi and OKwind, the solar tracker company, are positive. But Euroapi is a spin-off of Sanofi . The pharmaceutical laboratory has not raised any funds but has distributed shares of its subsidiary specializing in active pharmaceutical ingredients. 2022 was a difficult year for small caps in a context of growing risk aversion (geopolitics, increase in long rates) and in the absence of fund inflows. The CAC Small index has lost 20% over this period.