There are many ways to evaluate the true success of an IPO — and the Royal Mail's may well fail many of them — but using the first few days of performance in the secondary market as an absolute guage is not one of them. All that Royal Mail’s shares trading up 46% in the aftermarket tells us is that it wasn't a failure.
CVC’s sale of the Belgian mail service, Bpost, in June didn’t receive half the attention that Royal Mail got. But its first day editorials would have been glowing: it traded up 0.3% on its first day, then dropped back down to issue price for the next few days. That is, according to the critics of the Royal Mail deal, a sure sign of a perfect valuation.
But then the shine came off Bpost. The shares slid slowly downwards for eight weeks and then were terrifyingly volatile for the next couple of months. As of Monday, the retail and institutional investors that bought the deal are 1.6% out of pocket.
Only on the basis of that medium-term performance — after the deal has been digested, and a fair price has been found — can a vendor know whether its sale was mispriced.
Poor performance by the Royal Mail would not simply have been unfair to those retail investors who braved the newly built electronic application system to apply for shares. The UK government is still hanging on to large stakes in Royal Bank of Scotland and Lloyds, as well as Royal Mail — all of which it may, for political as well as financial reasons, choose to sell in deals with at least some retail participation. It is not one sale but the whole exit that matters when selling companies, as many private equity owners have learnt to their cost. It’s to the government’s credit that it took on a cautious strategy.
As to the criticism that the retail allocation was too small, increasing the retail portion would have increased the volatility in the stock. That the retail tranche was not larger is apparently a horrific sin to the exact same people who see the first day of trading as a precise summation of the success of the float. One simply can’t have it both ways.
A good IPO leaves the stock in the hands of safe, long-term holders — which the British public have shown themselves not to be. For all the scorn poured on to bankers over the last few years, the British public are remarkably happy to speculate. Look at the steady stream of sales of 227 shares, the maximum allocation, on Tuesday morning, as retail investors’ accounts got settled.