Volatility hits investor appetite
Market volatility clearly affected fundraising proceeds in the second half, with proceeds down compared to the first half and the same period last year. Total new and further issues amounted to £2.33bn in H2 2018, 26.5% lower than the £3.17bn raised in H1 2018 and 46.6% lower than in H2 2017 (£4.36bn).
The reduction was largely due to lower further issue proceeds which declined from £2.43bn in H1 to £1.52bn in H2 (H2 2017: £3.21bn). By contrast, new issue proceeds increased from £748m1 in H1 to £816m in H2 (H2 2017: £1.14bn). This is somewhat surprising as market volatility would normally be expected to affect IPO appetite more adversely than fundraising for existing listed companies.
Whereas further issue proceeds of £1.52bn were lower than the five year average of £1.99bn, new issue proceeds of £816m were slightly higher (£809m).
For 2018 as a whole, new issue proceeds amounted to £1.56bn – broadly in line with 2017 (£1.59bn). By contrast, further issue proceeds totalled £3.94bn, 17.6% lower than in 2017 (£4.78bn).
Whereas IPO proceeds normally account for the vast majority of new issue proceeds, in H2 2018 they were split 50/50 between IPO and non IPO raises (such as reverse takeovers). Two companies accounted for the majority of new issue non IPO proceeds: Diversified Gas & Oil, which raised £189m to fund the acquisition of oil and gas assets and Applegreen which raised £153m to acquire a majority stake in Welcome Break.
Total new and further issue proceeds for the year amounted to £5.51bn. Although lower than in 2017, this was still the third highest annual total since 2011. This suggests that, despite market uncertainties, funds are still available for companies with the right investment story.
The reduction in further issue proceeds compared to H1 2018 reflects both smaller average transactions and lower transaction volume. 208 companies raised money through further issues in H2 2018 compared to 229 in both H2 2017 and H1 2018. Average proceeds per company of £8.2m per company compared to £11.6m in H1 2018 and £14.0m in H2 2017.
Companies appear to be relatively resilient in pursuing further issues as a route to growth, although doubts over the market may have adversely impacted the average funds raised from investors through this channel in H2 2018.
Funding by sector
55% of total funds raised were in financial (21%), oil & gas (19%) and consumer services (15%). In the first half of the year, industrials (22%), real estate (15%) and oil & gas (14%) were the strongest sectors whereas in the same period last year, there was a much broader spread of proceeds across a number of sectors with real estate (13%) being the highest.
Real estate’s strong showing in H1 2018 and H2 2017 is in stark contrast to the most recent period. In H2 2018, real estate proceeds amounted to a mere £3m (H1 2018: £486m; H2 2017: £465m). This shows the extent to which this sector is suffering from market uncertainty, with UK property affected by Brexit jitters, the retail downturn and general investment indigestion in the sector after several strong years.
Stronger performance in the financials segment was helped by placings for Burford Capital and Draper Espirit, raising £193m and £115m respectively in the second half of the year.
IPOs in the oil & gas sector by Jadestone Energy and Tekmar Group raised £84m and £62m in H2 2018 respectively, with the sector benefitting from the increase in oil prices in the first half of 2018.
There was higher activity in the consumer services sector in H2 2018 than in recent years, with further issues from Victoria plc and IG Design who together raised a total of £110m in H2 2018.
For the year as a whole, the best performing sectors for funds raised were financial (£902m) and oil & gas (£895m):
- The financial sector was boosted by the IPOs of Urban Exposure (£150m) and Trufin (£70m) and the further issues of Burford Capital and Draper Esprit.
- The oil and gas sector had further issues by Diversified Gas & Oil (£133m) and Savannah Petroleum (£100m) in the first half, together with a new issue raise by Diversified Gas & Oil (£189m) and IPO proceeds for Jadestone Energy (£84m) and Tekmar Group (£62m) in the second half.