IPOs M&A and the search for growth with Fairview Equity Partners

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with Fairview Equity Partners Executive Director, Michael Glenane
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from boutique small cap manager, Fairview Equity Partners is Executive Director, Michael Glenane. Michael, welcome back.
Michael Glenane: Thank you.
Carolyn Herbert: We’ve got a Federal election coming up in early July. What impact is this going to have on the small cap sector?
Michael Glenane: We’ve been out on the road a lot lately, visiting our companies and picking up a lot of uncertainty out there. The consumer especially, doesn’t like uncertainty and neither does business. And this election campaign that’s coming up looks like it’s going to be long and hard fought. Pretty soon there’ll be the warning season, which generally occurs in May. And if that’s the case, what we’re thinking might happen; it’s going to be a pretty tough warning season coming through.
Carolyn Herbert: There haven’t been many IPOs in the March quarter. So how is the IPO window shaping up over the next three months?
Michael Glenane: It’s really interesting, but market volatility put the IPO window to bed for the March quarter. And what happens in that case is there’s a bit of a log jamb. These IPOs don’t disappear; they just get pushed back in the queue. And it’s interesting that especially last year, we’ve seen the results of PE or private equity floats, which have come to market a couple of years before, been primed for a really good first year and then the second and third year, the wheels fall off.
So we’ve learnt a lot of lessons from that ourselves. And to give you a couple of examples, Cover-More Group Limited (ASX:CVO), 3P Learning Limited (ASX:3PL), Nine Network Australia Limited (ASX:NNA) and even Ozforex Group Limited (ASX:OFX), all of those had very poor second or third years, as listed entities. So what we do at Fairview is we invest in about 25 to 30 per cent of IPOs to the market. And it’s more than once that we reject,that hopefully will give our unit holders some comfort.
Carolyn Herbert: Finally Michael, any other issues you believe are worth highlighting?
Michael Glenane: I think there’re two that are really interesting at the moment. The first one is after the resources relief rally of the March quarter, expect to see those companies especially in the small cap area, come to the market to raise capital. Not because they want to, but because they can. And that’s a window, which we would expect over the next three to six months.
Even more importantly, we think there might be an M&A surge coming along. It’ll probably occur after the election, we’ve got the environment for M&A. And the first thing is easy credit availability. And the second thing is really anaemic earnings growth, from the large cap companies.
For calendar year 16, large cap forecast from the EPS basis, is a growth of 0.8 per cent. First it’s on the small cap basis 9.3 per cent growth. There’ll be a lot of pressure on these large companies with regard to their investor base, asking and prompting for earnings growth. And one of the easiest ways for that to occur is through M&A. We’ve seen this before in the mid-Nineties, those conditions are occurring again.
Carolyn Herbert: Michael Glenane, thanks for the update on Fairview Equity Partners.
Michael Glenane: Thanks so much.

Carolyn Herbert

Finance News Network
Carolyn joined FNN in August 2015 as the Head of News and also presented the Market at Midday and the Market Wrap. With more than five years of broadcast journalism experience, Carolyn has worked as a finance anchor on the Sky News Business channel and as an anchor and reporter for ABC News. She is also a qualified corporate lawyer specialising in IPOs, takeovers and mergers and acquisitions.