Of a hundred or so companies listed since 2014, the average performance excluding dividends reached -33%. Only 13% of companies capitalizing less than one billion euros have managed to post an increase in their share price since listing.
A very clear difference depending on the level of market capitalization
The performance of IPOs in France since 2014 has disappointed many investors. Indeed, as reported in an article published in issue 174 of Vernimmen Letter, the average performance of IPO companies over the past 5 years is -33% (-48% median). This negative performance mainly concerns market capitalizations of less than one billion euros. However, between 2014 and 2019, the SBF 120 index appreciated by 36%, and even the CAC Mid & Small posted a positive performance of +55%.
As a result, there is a significant difference in performance depending on the level of market capitalization of companies at the time of their IPO. Companies with market capitalizations in excess of one billion euros succeeded in increasing their share price in over 60% of cases. By contrast, only 13% of IPO companies with a market capitalization of less than one billion euros saw their share price rise. The former recorded an average price increase of 11%, while the latter suffered an average decline of 46%.
A more fragile business model
There are several possible reasons for this underperformance. Firstly, SMEs have a more fragile business model. The authors of the Letter refer in particular to the biotech and greentech companies listed on the Paris Stock Exchange.
On the other hand, some companies set unrealistic targets and fail to achieve the expected results. These incidents sometimes bring an entire sector into disrepute. This is the case of autonomous shuttle manufacturer Navya, which in July 2018 announced that it had raised €37.6 million, whereas its initial target was to raise €51.3 million. At the beginning of December, Navya had also revised its sales figures downwards (from 30 to 20 million euros), which cast a pall over the markets.
Other factors that explain this difference include the fact that, for large IPO projects, most investors are institutional investors with the knowledge and resources to analyze the dossier. Small investors and family offices "whose level of financial sophistication is much lower" are more likely to position themselves for SME IPOs, according to the authors of Vernimmen.
Given the disastrous results recorded, it will probably be harder for smaller companies to succeed with their IPOs, especially as the risk of investors' patience running out is high.