The Monthly: July 2018

01 Jul 2018 / Corporate research

Feature article:

‘After the Love Has Gone’

Earth, Wind & Fire, 1979

Or post-IPO liquidity – how bad is it, does it matter and what can companies do about it?

 

By Keith Hiscock CEO and Yingheng Chen

  • We have analysed every IPO on the London Stock Exchange (LSE) between January 2015 and February 2018.
  • Our analysis proves that, as expected, liquidity does dry up after float. The scale varies between markets and sectors.
  • For example, the average company with an initial market capitalisation (IMCAP) in the range of £500-£1,000m sees 18% of its shares change hands in the first month. After that, between 2% and 4% are traded.
  • An observer would expect a positive correlation between IMCAP and liquidity, since investors typically prefer larger companies. This is not borne out by our analysis – the R2 suggests virtually no correlation.
  • Similarly, one would expect that, the more new money raised as a proportion of the IMCAP, the higher the subsequent liquidity. Our analysis shows this is not the case.
  • Post-IPO liquidity should matter to shareholders and advisors.
  • There are number of ways to stimulate post-IPO liquidity, ranging from capital markets days to sponsored research.
  • This is an excerpt from a larger Hardman & Co Insight to be published shortly, which will include the full methodology.