The European IPO market is currently facing what could be the most significant challenge since the advent of the global financial crisis.
Data released by the Association for Financial Markets in Europe (AFME) on August 2 indicates that merely 34 companies have gone public in Europe during the first half of this year, marking the lowest figure since 2009. Concurrently, companies raised only €2.4 billion through IPOs in Europe, reflecting a staggering 42% drop year-on-year—a record low not seen in 14 years.
Richard Spilsbury, a partner in PwC UK's capital markets team, candidly noted, “IPO activity is considerably lacking.”
Observers in the UK attribute the decline to rising interest rates and record-high inflation, which have compelled many companies to shelve their IPO ambitions
Simultaneously, the US market is gaining traction for European firms, offering more significant capital opportunities.
Diminished Enthusiasm for IPOs
The decline in both the number of IPOs and the amount of capital raised has left the European market in a state of anxietyIn response to these challenges, European policymakers are embarking on reform initiatives: the UK is preparing a series of measures aimed at directing funds toward high-growth firms, while the EU is working on simplifying the listing process and increasing the visibility of small companies among investors.
Among those companies that did manage to go public, only a scant few benefited from underwriters' efforts to facilitate a surge in share prices on their first trading day, as well as stability in after-hours trading
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Spilsbury commented that the stock performance of recently listed companies has been “generally quite poor,” hindering further engagement from fund managers in new share offerings.
An analysis by Reuters Breakingviews of a group of ten larger publicly traded companies revealed that half of these companies are now trading below their listing priceSince going public, these companies have seen an average stock price increase of merely 3%, while the STOXX 600 index in Europe approached a nearly 10% gain by the end of JulyThe meager post-listing returns stand in stark contrast to this broader index performance.
In terms of specific examples, London's largest IPO this year was by the fintech firm CAB Payments, which managed to raise about £300 million when it went public in July, only to see its stock plummet nearly 10% on its first trading day.
Other European businesses have tried to find the right moment to go public, only to end up canceling or postponing their plans
Italian software company Maggioli SpA and its shareholder Pacri Srl recently withdrew their IPO plans in Milan, citing unfavorable market conditions that precluded them from achieving a “satisfactory valuation.” Likewise, German energy storage provider Intilion postponed its IPO in July for the same valuation concernsIn mid-June, Turkish coal ash producer WE Soda abandoned its IPO plans in London, with CEO Alasdair Warren expressing disappointment over the low valuation offered by investors.
The near-freeze of the European IPO market is expected to persist for some timeBankers anticipate that many price-sensitive merger and acquisition funds will postpone the public offerings of large European companies for the remainder of the year.
For instance, Swedish private equity firm EQT is currently planning a private placement for Galderma, a Swiss skincare company, offering the firm additional time to prepare for its much-anticipated IPO, with an estimated valuation exceeding $20 billion.
Additionally, according to Reuters, the medical glass sector of German glass manufacturer Schott AG plans to pursue an IPO in Frankfurt once the summer ends, while defense contractor Renk also aims to go public by the end of the year, provided that its private equity owner Triton cancels the possibility of a private sale.
Bank of America indicates that Europe may require more time before witnessing the resurgence of another IPO boom
James Palmer, the bank's head of equity capital markets for Europe, the Middle East, and Africa, noted that historical trends suggest that downturns in the IPO market can last up to two years before recovery becomes apparent“It seems history is repeating itself,” he noted.
Palmer added, “This will be a gradual recovery rather than a wave of transactionsWhile overall performance across various indices is strong, there are complexities hidden beneath the surface for many individual stocks.”
Shifting Focus to America
As many high-growth companies feel unable to thrive in the European market, they are increasingly turning their sights toward the US
For these firms, the American market presents a vast pool of capital, and investors there are often more willing to take risks in funding new enterprises.
Data from Dealogic reveals that the slowdown in the US public listing market this year is considerably milder, with 75 companies going public in the first half of the year, raising $11.5 billion—both the lowest figures since 2015.
Notably, many companies, including chipmaker ARM, have opted to list in the US rather than their local markets this year.
ARM, backed by SoftBank and headquartered in Cambridge, UK, is expected to make its IPO on Nasdaq as early as September, aiming for a valuation between $60 billion and $70 billion
Riding the wave of interest in artificial intelligence, ARM could become one of the largest IPOs in the US market over the past two years.
In May, the world’s fourth-largest mining company, AngloGold Ashanti, announced plans to shift its primary listing to New York, while retaining Johannesburg and Ghana as secondary venues.
CEO Alberto Calderon stated that New York's status as a second headquarters for the firm has positioned itself to tap into “the world’s largest capital market and pool of gold investors,” while listing in London could negatively impact stock liquidity.
Consistently, London has been a traditional listing ground for many of the world’s largest mining firms, signaling a waning allure for the city, juxtaposed with an increasing pull toward Wall Street.
Furthermore, companies already listed on European exchanges are also contemplating the prospect of relocating to the US.
Irish building materials company CRH is in the process of shifting its primary listing to the US, while de-listing from the Dublin Euronext; however, it will maintain its presence on the London Stock Exchange
This change is expected to take effect on September 25.
CRH has highlighted that nearly three-quarters of its earnings stem from the North American market, which represents the key growth driver moving forwardThe firm believes that this transition will unlock greater commercial, operational, and acquisition opportunities, ultimately delivering higher profitability and dividends for shareholders.
Moreover, executives from the energy giant Shell expressed at the year's start that they considered relocating the company’s headquarters to the US.
“Some European companies prefer to list abroad due to better liquidity in the US