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Preparing for failed IPO deals

Preparing for failed IPO deals

Friday 07, 02 2020
With the boom of the dynamic business sector, Vietnam needs to clearly recognize the probable failures of the IPO process.

Mon Hue's failure after the capital mobilization in the market in recent days is not an isolated case when the world market has recorded many cases of post-IPO failure.

Information of Mon Hue restaurant chain being closed and accused of owing suppliers money has caused a stir in the business community in recent days.

A few years ago, Huy Vietnam made Vietnam's stock market "stir" when the ambition to issue the first initial public offering (IPO) on the Hong Kong Stock Exchange (HKEx) with the capital mobilization expected to amount to 100 million USD.

According to Vo Dinh Tri, a member of the Vietnam Association of Researchers and Global Experts (AVSE Global), Mon Hue failure before reaching the IPO is not an exception in the market.

Preparing for failed IPO deals
For example, the recent story of WeWork slipping from US $ 47 billion to US $ 10 billion just before the IPO has also caused a stir. Or the Asia-Pacific branch of Anheuser-Busch InBev SA (the world's largest beer company) was also forced to cancel the IPO in July 2019, despite JPMorgan Chase & Co. and Morgan Stanley advises the proposed sale of more than 9.8 billion USD. 

Beside the "collapses" just before the IPO, the market also witnessed the failed IPO deals. Uber failed in the IPO in May 2019 when US-China trade tensions escalated and the Uber's share price was listed at $ 42, 6.7% lower than the IPO valuation ($ 45). Or the first launch of Xiaomi market was not very smooth when the stock trading price was lower than the IPO price.

Explaining the failure of these IPOs at Vietnam Finance and Banking Forum organized by AVSE Global and Banking Academy on October 24, Professor Brian Lucey, University of Dublin, Ireland said there are many reasons why IPOs are not successful. 

This may be the result of the issuer itself, or the IPO advisory units themselves due to the failure to value the right corporate value and market signals like Uber's case right when the US-China trade tensions escalated ... "However, the failure of an IPO does not mean a failure of the enterprise," Brian said.

According to him, in many cases, businesses actively withdraw from the IPO when they realize the lack of positive signals from the market or investors. But this also costs businesses time and money for preparing an IPO.

Also according to Mr. Brian, in addition to the above cases, the market also recorded the failure of enterprises after the IPO as businesses cannot list after IPO as prescribed.

The reason, according to Mr. Brian, may be because of investors adjusting their business strategies, deciding to withdraw capital from the enterprises; disagreements in management making the enterprises unable to continue developing; changes in policies making businesses face difficulties in market development and expansion; or due to adverse factors such as increasing trade and political tensions, etc. 

According to a study by Dr. Brian researching businesses that failed after an IPO over the past 10 years, 334 enterprises withdrew their IPOs, 122 maintained their private operation model, 110 enterprises conducted mergers and acquisitions, 75 enterprises left the market and 27 enterprises recovered the IPO.

Therefore, he said that with the boom of the dynamic business sector, Vietnam needs to clearly recognize the failures that can happen to businesses of the IPO process to have the preparation for the coming time when the capital mobilization from the capital market gradually increases. 

"However, one point worth noting is that, from the failed IPO deals, I realize that behind successful IPOs there are the shadows of investment funds (Venture Capital) when these funds do very well in valuation and consulting, etc. In which, many funds not only follow the business for a few years but they also follow the business a long way to support business management and development.", Mr. Brian stressed.

>>> Bank share market expects changes in 2017

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