1.26 In parallel to the restructuring of DERA, the Department, its consultants and DERA management considered two options for the route towards privatising QinetiQ: an early flotation, via an Initial Public Offering, or seeking a strategic partner to help develop the business in advance of a flotation. The Department and DERA management had already held several meetings with potential investors, many of whom had been monitoring the situation closely since the announcement of a PPP in 1998.
1.27 Although the QinetiQ Board argued strongly for an immediate flotation, in January 2002 the Department, advised by UBS Warburg, decided against this. This was in part because at that time the market for flotations was poor, with the lowest number of flotations for over ten years: 2001 had seen only 78 companies newly listed on the London Stock Exchange, compared to 138 in 2000. Market sentiment toward Government offers was also affected by a deterioration in the financial position of the privatised business Railtrack, which had culminated in it being put into administration in October 2001. The Department also concluded that QinetiQ's potential as an investment opportunity was not yet clear, as it had had less than a full year's trading as a corporate entity. Furthermore, QinetiQ could not yet demonstrate its ability to operate in a competitive environment because the vast majority of DERA's contracts had been awarded without competition. Uncertainty over the future of the Facilities Management Contract (paragraph 1.13), which at the time accounted for almost 30 per cent of QinetiQ's revenue, would also have affected sentiment towards a QinetiQ flotation.