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.