Direct Line shines on trading debut
Investors in Direct Line, who voiced over-valuation fears ahead of its London listing this week, have seen the insurer deliver the biggest pop for a UK company of its size in over a decade.
Direct Line's £787.5m initial public offering on the London Stock Exchange yesterday was notable for a number of reasons: it was the largest European IPO since Dutch cable firm Ziggo listed in March for $1.2bn; it was the largest London-listed IPO since acquisition vehicle Vallares' $2.1bn float in June 2011; and it was the largest listing of a UK corporate since the £2.4bn IPO of financial group Standard Life in 2006.
Shares in the insurer, which is majority owned by the Royal Bank of Scotland, ended yesterday at £1.88m, a 7.43% increase on its offer price. This reprsented the biggest pop – or opening day rise – from a UK firm listing at over £500m since 2002, according to data from Dealogic. William Hill rose 9.56% over the first day of its £734m listing on 14 June 2002.
It was also the largest increase over the first day for any UK company since the IPO of airline group Flybe in December 2010, which rose 15.68% over its first day’s trading.
RBS announced plans to list Direct Line on September 14, and employed Goldman Sachs, Morgan Stanley, UBS, Bank of America Merrill Lynch, Citigroup and HSBC to help list the firm. RBS is being forced to offload the insurer before the end of 2013 and yesterday offered almost one third of the firm on the LSE.
Early on in the listing process last month, one fund manager told Financial News that some of the investment banks on the deal were over-estimating the value of Direct Line by up to 20%.
But pressure from RBS to have a successful IPO of Direct Line meant an over-valuation was unlikely. One fund manager that was offered stock told Financial News: “I didn’t see many other options for these guys. Unless someone walked into the room [and offered to buy Direct Line], then management had to go with the market here. Banks had to try and maximise the valuation while trying to make sure everyone kept engaged.”
Direct Line did not respond to requests for comment.
