Successful Guzman y Gomez IPO could pave way for Virgin Australia and others to follow

Markets are awaiting for Bain Capital to hit go on its much-anticipated Virgin Australia IPO. Picture: Brendan Radke

The much-hyped and successful ASX debut of Guzman y Gomez could be the start of a turning point for underperforming initial public offering, with players such as Virgin Australia now likely to follow suit in the coming months if the Mexican-themed fast-food chain continues to perform well.

Market watchers say while one IPO is not enough to turn the tide, Guzman y Gomez will be a key block in building confidence and helping to align vendor expectations and public market pricing for IPOs.

Guzman y Gomez, which has a $2.78bn market valuation, debuted to much fanfare on the ASX last month with the share price lifting 40 per cent from its IPO price of $22 to $30.99 on debut, before trading a respectable 27 per cent higher at $27.88 on Wednesday.

As DataRoom reported last month, Bain Capital is understood to have put its IPO plans for Virgin Australia back on the runway following the success of Guzman y Gomez, with the private equity firm’s advisers – Goldman Sachs, UBS and Barrenjoey – now angling for a listing by Christmas.

BDO private equity and transaction services partner Sebastian Stevens told The Australian that the success of the Guzman y Gomez IPO last month would help instil confidence in companies such as Virgin Australia to list.

“However, this in itself is not enough to give the market confidence. But coupled with a number of other IPOs likely to come to market towards the end of the calendar year, we think this could set 2025 up to be a more buoyant IPO year.”

McGrathNicol Advisory deals partner David Barnaby said Guzman y Gomez could pave the way for Virgin Australia to list sooner rather than later, providing it continued to trade at or above its $22 IPO price, as he added that the market remained in a “wait and see” mode.

“We expect IPO activity to remain patchy for the balance of 2024 and we may only see an upswing in improvement in calendar year 2025,” he said.

Data from the ASX shows that there are five scheduled IPOs this month including Ordell Minerals, which Argonaut Securities has opened the books at 20c in the hope that the heady gold price – and a bit of lithium nearology in the south of Western Australia – will help to get a $5m float away.

BDO partner Sebastian Stevens says Guzman y Gomez could kick off a rebound in IPO activity.

In the past six months there have been 15 IPOs including the dual listings of Canada’s Capstone Copper and US-based Metals Acquisition Corp.

Major IPOs have been few and far between, with Guzman y Gomez totalling $335.1m and Redox the largest in the post-Covid era at $402.23m in June 2023. Since 2019, Dalrymple Bay Infrastructure, GQG Partners and PEXA are the only billion-dollar-plus IPOs.

It is believed advisers on the deal will use the same tactic with the Virgin float, where Bain only sells down a very small holding simply to get the airline listed, although the understanding is that no final decision has yet been made by Bain Capital.

Mr Stevens said IPO activity had been subdued for 18 months as vendor expectations and public market pricing were not aligned.

“Higher interest rates and the ambiguity as to where those rates would ultimately land, together with the volatility in the market, has put a dampener on IPO activity,” he said.

2023 saw 32 new listings on the ASX, raising a total of $847m – well below the 87 new listings in 2022 which raised just over $1bn.