The past few months have seen a string of retailers hint at the possibility of an Initial Public Offering (IPO) in 2014.

The past few months have seen a string of retailers hint at the possibility of an Initial Public Offering (IPO) in 2014.

Pets at Home has brought in the investment banks to take charge of a £1.5 billion listing, revealing itself as the latest retailer preparing for a stock market floatation next year. Other UK retailers with prospective stock market listings on the horizon include House of Fraser, B&M Bargains and Poundland.

This strategy is certainly a well-trodden path for businesses that get passed between numerous private equity firms before going public. Once public, this cycle often starts again, as private equity firms are always on the lookout for value stocks and potential public-to-private investments, which means that this capital structure merry-go-round continues to turn.

IPOs are an attractive option for retailers at the moment due to the high levels of liquidity in capital markets and the willingness of investors to continue ploughing money into flotations. What’s more, recent high profile flotations such as Royal Mail have drawn increased attention to the opportunities available.

However, Goldman Sachs and UBS, who were in charge of allocating the Royal Mail shares following its IPO, are set to be questioned before a Parliamentary Select Committee over allegations that they discriminated against UK pension funds and favoured foreign investors instead. The investment banks have received strong criticism for supposedly short-changing taxpayers after they undervalued Britain’s former state postal service, whose shares soared on the stock exchange within hours of the IPO.

While IPOs tend to result in high fees for investment banks, the recent events surrounding the Royal Mail flotation could mean that retailers opting for an IPO in 2014 might struggle to have a successful float. Although the current backlash against UBS and Goldman Sachs won’t deter bankers in proposing IPOs, it may ultimately reduce the number of investors available because of the scepticism that has emerged as a result of Royal Mail’s undervalued shares.

So, it remains to be seen which retailers will float on the stock market next year. However, retailers looking to float in 2014 will need to make sure that their exit is managed carefully and that they work closely with both the banks and potential investors. Ultimately, this will the best way to ensure a smooth journey onto the stock market.

  • Dan Coen, director, Zolfo Cooper