CITY FOCUS: Floating is now back in fashion in London

By KAREN ATTWOOD and ABDUL TAHER
Updated: 17:56 EST, 1 February 2010

With travel services group Travelport leading the way with a £2.2bn stock market listing, London appears set to become a hive of investment activity once more.

But bankers warn there is only a small window of opportunity to get deals away before a spring General Election brings uncertainty back to the City.

Furthermore, with the credit markets now thawing, debt is becoming available for deals.

Clothes retailer New Look is expected to set out its intentions to float this week

This means solid businesses are equally likely to be snapped up by private equity or rival firms at top prices instead of making it to flotation.

Last year, there were just 11 listings in London - mostly on the Alternative Investment Market - with a total value of £1bn, according to data from Dealogic.

This compares with 298 deals valued at £35bn in 2006.

Instead, 2009 was a record year for rights issues as troubled companies raised £73bn.

It meant there was little or no cash left over to invest in new, growing firms coming to market.

But the London Stock Market is currently gearing up for a flurry of activity with floats worth £3.2bn in the pipeline so far.

Among them are clothing chain New Look, which is expected to set out its intentions to float this week, Merlin, the owner of Madame Tussauds and Alton Towers, fashion retailer Supergroup and Promethean, the educational technology company.

David Wilkinson, IPO leader at Ernst & Young, said many of the deals that will come to fruition in the next couple of months will have been on the table when the stock market started to make an improvement last summer.

Bankers urge deal-makers to swing into action before the General Election

Stock market listings are looking a 'very good bet', he says - for the seller, at least.

That's because options for realising value are becoming limited by a lack of trade buyers, while private equity can afford to pick and choose its deals.

Stock market investors will take a punt, but are becoming very discerning, according to Wilkinson, who says they are demanding 'good quality with good growth prospects'. They must also be low risk enteprises, he adds.

This is a point borne out by a senior banker at a leading institution involved in major deals currently on the table.

And he says investors still won't pay over the odds.

'There are times when the IPO window is closed shut but when it is open it is only open at the right price for the right business,' he says.

The surprise of recent months has been the re-emergence of private equity, which armed with new pots of cash has started buying businesses. It means some firms are not even making it to market.

This could be seen last week when Pets at Home, the UK's biggest pet shop chain, which was touted as a possible float, was sold to Kohlberg Kravis Roberts, the New York based private equity house, for £955m.

The chain's owners Bridgepoint Capital had valued the business at £700m. Mario Levis, Professor of Finance at Cass Business School, says London needs 'two, three or four good IPOs' now in order restore confidence in the system.

'There's quite a lot of herding that goes on, if there's a good one, there will be another good one,' he adds.

There has been concern that London may be eclipsed by emerging markets particularly following the decision by Russian oligarch Oleg Deripaska to list aluminium giant United Company Rusal, in Hong Kong.

But Professor Levis said he doesn't believe Hong Kong will be a threat.

'London is London,' he said. 'Already Hong Kong is seen as a good place to have a listing in order to create more liquidity but the world watches London and New York.

'That is where you get the reputation, the big trades and the big institutions.'

But although London looks likely to hold a number of major listings in the next few months, a general election is likely to put a halt to activity by the spring.

Wilkinson said: 'If the big ones come to the market it will be a good sign but it will not open the floodgates. The uncertainty of an election will cause people to hold off.

'The summer is generally a slow period so we it will probably pick up from September onwards.'