[/caption]
It’s been quite some time since I’ve blogged about Initial Public Offerings (i.e. IPO), with my last post on this being dated April 2009 and the previous one was more than 2 years ago in August 2007! Over this time, I have learnt a lot more about the nature of IPO and also how their appearance (and disappearance) tends to coincide with economic cycles. Let me elaborate further.
It has been noticed by me that when markets crash and valuations hit extreme rock bottom, no companies out there will be willing to list. This is because they will be unable to raise much money are the valuation multiples used would be rock-bottom, and also since they are one of the few who may choose to list, they may also be subject to greater scrutiny by the investing public. The rationale for listing will always be to raise funds, and of course the more funds raised with the same number of additional issued shares, the better, as there will be less dilution to the founding shareholders.
Conversely, if we look at the situation at the height of the bull market in 2007, IPO were being churned out like clockwork and all sorts of kachang-puteh companies (i.e. companies without much substance) could list without much problem. All one needed was to spin an attractive growth story, fill in some nice-looking numbers and come up with glossy marketing material and everyone would pile in to catch a piece of the action. I remember it being so bad that forums were filled with punters (they call them “stags”) who bet on the closing price on the first day of IPO and how many % they would be above their offer price. Sadly, I must admit that I was also one of the uninformed who tried my hand at applying for one of these “hot issues” , till I realized better some time later and stopped altogether. All sorts of companies, whether good, bad or ugly, will be able to list at lofty valuations during a bull market, and the onus is up to the investor to ensure he does his due diligence so as to avoid massive losses when such promises of growth do not come true. Read more...[caption id="attachment_3627" align="alignright" width="150" caption="Photo by LaPrimaDonna"][/caption]
It’s been quite some time since I’ve blogged about Initial Public Offerings (i.e. IPO), with my last post on this being dated April 2009 and the previous one was more than 2 years ago in August 2007! Over this time, I have learnt a lot more about the nature of IPO and also how their appearance (and disappearance) tends to coincide with economic cycles. Let me elaborate further.
It has been noticed by me that when markets crash and valuations hit extreme rock bottom, no companies out there will be willing to list. This is because they will be unable to raise much money are the valuation multiples used would be rock-bottom, and also since they are one of the few who may choose to list, they may also be subject to greater scrutiny by the investing public. The rationale for listing will always be to raise funds, and of course the more funds raised with the same number of additional issued shares, the better, as there will be less dilution to the founding shareholders.
Conversely, if we look at the situation at the height of the bull market in 2007, IPO were being churned out like clockwork and all sorts of kachang-puteh companies (i.e. companies without much substance) could list without much problem. All one needed was to spin an attractive growth story, fill in some nice-looking numbers and come up with glossy marketing material and everyone would pile in to catch a piece of the action. I remember it being so bad that forums were filled with punters (they call them “stags”) who bet on the closing price on the first day of IPO and how many % they would be above their offer price. Sadly, I must admit that I was also one of the uninformed who tried my hand at applying for one of these “hot issues” , till I realized better some time later and stopped altogether. All sorts of companies, whether good, bad or ugly, will be able to list at lofty valuations during a bull market, and the onus is up to the investor to ensure he does his due diligence so as to avoid massive losses when such promises of growth do not come true. Read more...
[/caption]
It’s been quite some time since I’ve blogged about Initial Public Offerings (i.e. IPO), with my last post on this being dated April 2009 and the previous one was more than 2 years ago in August 2007! Over this time, I have learnt a lot more about the nature of IPO and also how their appearance (and disappearance) tends to coincide with economic cycles. Let me elaborate further.
It has been noticed by me that when markets crash and valuations hit extreme rock bottom, no companies out there will be willing to list. This is because they will be unable to raise much money are the valuation multiples used would be rock-bottom, and also since they are one of the few who may choose to list, they may also be subject to greater scrutiny by the investing public. The rationale for listing will always be to raise funds, and of course the more funds raised with the same number of additional issued shares, the better, as there will be less dilution to the founding shareholders.
Conversely, if we look at the situation at the height of the bull market in 2007, IPO were being churned out like clockwork and all sorts of kachang-puteh companies (i.e. companies without much substance) could list without much problem. All one needed was to spin an attractive growth story, fill in some nice-looking numbers and come up with glossy marketing material and everyone would pile in to catch a piece of the action. I remember it being so bad that forums were filled with punters (they call them “stags”) who bet on the closing price on the first day of IPO and how many % they would be above their offer price. Sadly, I must admit that I was also one of the uninformed who tried my hand at applying for one of these “hot issues” , till I realized better some time later and stopped altogether. All sorts of companies, whether good, bad or ugly, will be able to list at lofty valuations during a bull market, and the onus is up to the investor to ensure he does his due diligence so as to avoid massive losses when such promises of growth do not come true. Read more...
