October and November are on course to be two of the busiest months for new stock market entrants this year. By my calculations there are 12 confirmed IPOs (initial public offerings) about to happen on the UK stock market and rumours of nearly another 20 companies set to float in the coming months or early in 2018.

The past few weeks has already seen numerous companies list on either London’s Main Market or AIM including Scottish housebuilder Springfield Properties (SPR:AIM) and property investor Warehouse REIT (WHR:AIM). Is this cause for celebration or concern?

What the rush means

Some market commentators believe a rush of IPOs normally happens towards the end of a bull market rally. Excited investors are happy to invest in new names in the belief that all shares will go up in value.

The sellers of these businesses, quite often private equity firms, are exploiting this market situation by offloading many of their investments via IPOs while there is a window of opportunity.

Of those trying to float, it appears that niche investment funds have found it much harder to raise money than individual companies. For example, Impact Investment Trust and The People’s Trust both had similar propositions and both failed to get enough money to float on the stock market this year. They wanted to invest in companies that benefited society, yet investors appeared to be nervous about how long it would take to make a positive return.

PennantPark Income Trust and Hipgnosis Songs Fund are two other recent examples of investment trusts which have failed to float.

Success can turn into failure

Getting enough support to proceed with an IPO doesn’t necessarily mean the company or investment vehicle has passed a certain quality filter. There have been several recent high profile disasters with newly-listed companies issuing profit warnings fairly soon after their stock market debuts. Toilet paper maker Accrol (ACRL:AIM), restaurant business Comptoir (COM:AIM) and services group Van Elle (VANL:AIM) spring to mind.

A widely-held view among experienced investors is to watch newly-listed companies from a distance to see how they perform on the market, before considering an investment. This should help to see if a company is feeling the effects of underinvestment under previous ownership (something that frequently happens with businesses owned by private equity); or whether its management team can cope with the pressure of running a publicly-listed business, among other factors.

The current lack of major political events in the UK (excluding Brexit negotiations), together with the continuation of a stock market bull run, could be the reasons why we’re seeing a flurry of IPO activity. I know from chats with industry people that general elections in 2015 and 2017 and the Brexit vote in 2016 certainly caused many IPOs to be delayed or cancelled, as investors wanted to see how those events played out before making investments. It’s now all systems go. (DC)

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