As interest grows in IPO, Gareth Iley, consumer partner at advisory firm Clearwater Corporate Finance, discusses conditions that are conducive to a successful IPO.

As interest grows in IPO, Gareth Iley, consumer partner at advisory firm Clearwater Corporate Finance, discusses conditions that are conducive to a successful IPO.

As with all investors, public markets are looking for the right business to invest in, and there are a number of characteristics that are of interest. 

Being a market leader makes the business a more attractive proposition, as the strong profits and customer loyalty makes the business more robust to the ups and downs of consumer spending and enables yields to be paid to investors. Pets at Home and Poundland are both good examples of this and if they float should command strong valuations.  

Having an international presence is also important, as it enables the business to be recognised globally and to derive growth from other markets with different economic conditions.

A global business is far more attractive than one confined purely to the UK. Also, as ecommerce continues to expand at the expense of bricks-and-mortar stores, strong online offerings are vital. Asos, with its developed website and high growth figures, is expected to continue on its upward trajectory as consumers switch spending online.

Generally, the most successful flotations require critical mass, so as a result, larger companies will remain favourable to the IPO exit route and, for some businesses, there is little in the way of alternatives.

The likes of Card Factory, Pets at Home and Poundland are already owned by large private equity funds and there are less exit options unless the overseas trade buyer steps in. The public market provides an excellent exit option for such businesses.

However, 2013 did demonstrate that smaller businesses, such as Conviviality Retail and Bonmarche, can float if they have loyal customers and defendable profits. 

Bonmarche capitalises on the ageing population, which has significant growth potential. 

Ultimately, investors will review each business on its merits and the next few months will clearly demonstrate what type of businesses the public markets are most interested in.

Gareth Iley is consumer partner at advisory firm Clearwater Corporate Finance