- First UK IPO under the new government off to the races as Rosebank Industries’ shares jump 78%
- Investors are placing their faith in Rosebank’s heads repeating the success they had with Melrose
- Rosebank IPO coincides with FCA’s listing reforms
“Is this the luckiest start to a new government ever? Since Labour got the keys to Number 10, England have reached the finals of the euro football championship and the UK economy has shown to be stronger than expected,” says Dan Coatsworth, investment analyst at AJ Bell.
“The UK stock market, as measured by the domestic-focused FTSE 250 index, has also risen since Labour came back into power. Now we’ve got the first IPO under Keir Starmer’s premiership and it’s one of the strongest starts in recent history.
“The founders of industrial ‘buy, improve and sell’ specialist Melrose are hoping to strike gold for the second time with a new vehicle called Rosebank Industries. Its shares have soared by 78% since joining the market today as investors clamour to own a slice of the business.
“Investors clearly hope the team will repeat what they achieved with Melrose, which was valued at £13 million when it joined the stock market in 2003 and hit a peak valuation of £12 billion in 2020. Melrose is one of the best examples of value creation on the UK stock market. It went from being a tiny business on AIM to being a member of the prestigious FTSE 100 index.
“Rosebank’s share price performance is classic market behaviour for an investment vehicle linked to individuals with a proven track record of success.
“Even though Rosebank’s only assets are cash, investors have been prepared to pay a premium to own its shares. Over the years we’ve seen such cash shells – or special purpose acquisition vehicles/SPACs – shoot up on speculation over what they might buy, and then the price falls back down when they announce a deal.
“This behaviour is partly short-term investors banking profits after a quick rally and also a realisation that the business will likely have to raise a lot of money to fund an acquisition. Rosebank was worth £50 million at IPO but wants to do deals worth significantly more than that valuation, targeting acquisitions worth up to £2.3 ($3) billion and funded by issuing new shares and debt.
“Rosebank has an identical strategy to Melrose – buy a decent industrial or manufacturing business that has temporarily lost its way, fix it, and sell it on – and repeat again and again. It wants to double its money in three to five years on each deal.
“The UK has a strong history of producing high quality industrial and manufacturing businesses, and if Rosebank can help any ailing ones to recover then it would be good for the country as well as the fixer’s pockets. But there is no guarantee that Rosebank will always clean up. Indeed, Melrose had a few bumps along the way, but a long-term investor might view that as part and parcel of owning shares.
“For now, the market reaction to Rosebank’s IPO could encourage other entrepreneurs to follow suit and list in the UK. That would be positive for the London Stock Exchange given the market is currently diminishing in size due to takeovers and companies defecting to other countries, mainly the US. It would also play well into the FCA’s new listings regime announced today which hopes to make the UK an easier and more attractive place for companies to list.
“The regulator’s intentions are good, but there are some flaws to the reforms as they could encourage lower quality and higher risk companies to list.”
