Flotation fever hits crazy heights

“Another week, another batch of share market debutantes lines up,” says Patrick Hosking in The Times. The past few weeks have seen initial public offerings (IPOs) from Poundland, Pets at Home, appliance seller AO World and online fashion retailer Boohoo.com.

Online takeaway service Just Eat, Jimmy Choo shoes and the AA roadside rescue services are next in line.

London listings so far this year have been worth around $5bn, up from $456m by this stage last year. The IPO market hasn’t been this busy since 2007. It’s been a similar story in America.

A buoyant IPO market reflects mounting confidence. Businesses have become more upbeat about the recovery in recent months, while the stock market had a very strong 2013, leaving fund managers sitting on plenty of money.

IPOs allow funds “to put big chunks of money to work in one go at what is usually considered a discounted price”, says Kylie MacLellan on Reuters.com, while strong markets tempt company owners to sell stakes.

Investors should approach such booms warily. As Ishaq Siddiqi of ETX Capital notes, private-equity firms can opportunistically use buoyant IPO markets to dump firms they have previously struggled to sell. When IPO fever coincides with heady valuations, the top of the market may not be far off.

UK listings are “being lapped up”, says Hosking. Yahoo.com points to Castlight Health, an online health information firm that floated last week at 107 times revenue – “the craziest deal since the heights of the internet bubble”.

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