The UK's main Initial Public Offering market has made a quiet start to the year, according to KPMG's Corporate Finance practice.
After a solid performance in 2004, the first quarter of 2005 saw only two trading companies joined the Official List to raise combined funds of £75 million.
This was in stark contrast to activity levels on the Alternative Investment Market which for March recorded the highest monthly level of activity since its inception with 55 IPOs raising a total of £356 million.
For the first quarter as a whole, 93 companies, including 13 from overseas, joined AIM raising a total of £524 million, which was more than trading companies joining the Main Market during the period.
However, only seven raised over £20 million each and the remaining 86 companies raised less than £3 million each on average, showing the importance of AIM as a provider of development capital to smaller businesses.
Charles Cattaneo, partner at KPMG Corporate Finance in Birmingham, said: "The lack of Main Market activity does not indicate that the market is stalling.
"We finished 2004 with a solid recovery in new listings and we enter the year with the fundamentals still strong and confidence robust. 2005 should be a relatively buoyant year for IPOs - there is currently a healthy pipeline and no reason to suggest these will fail to materialise.
"The increasing traffic on AIM is a further signal of the health of the IPO market."
The two trading companies to join the Main Market this quarter were training and employment group, Carter & Carter, raising £54 million, and pharmaceutical company, Ardana, raising £21 million. Additionally, during the quarter 11 VCTs/investment trusts joined the Main Market to raise a combined £528 million and there were two introductions raising no money.
At least 20 companies with fund-raisings each of over £300 million are reported to be considering an IPO in the UK this year.
The biggest potential floats (and possible amounts raised) include: retailer Debenhams (£3 billion); pub company, Spirit (£2-3 billion); BP spinoff, Innovene (£2-3.5billion); satellite communications company, Inmarsat (£1.6 billion); power station, Drax (£1.5 billion); food producer, RHM (£1 billion); auto aftercare provider; Kwik-Fit (£750 million-£1 billion); on-line casino, 888.com (£850 million) and online betting company, Betfair (£700 million).
Mr Cattaneo commented: "This is by far the healthiest pipeline we have seen for several years.
"Although some are names which have been mentioned before, most are new potential entrants.
"Of course, not all will arrive on the market in 2005 - some will delay and more may chose an alternative route, the most likely being a sale to a private equity house.
"Abundant equity looking for a home coupled with relatively cheap and available bank debt, will continue to enable PE houses to outbid the public markets in many cases.
"The PE route may not only offer a higher price, but can provide a vendor with a higher degree of certainty, a lower degree of publicity and the ability to sell 100 per cent of its investment. You can also see why senior executives might prefer life in the private arena.
"There is a single-minded focus on value undiluted by the obligations of governance and reporting required in the public market. There are also heavy incentives for managers to achieve their objectives and greater control over the company.
"Some businesses cannot support the higher levels of debt needed to make a leveraged PE deal work. If conditions stay fair we should see companies getting their IPOs away before the summer."
