Are European IPOs still good to go?

Forget volatility, the IPO market is open for business.

A jump in equity volatility in February scared both issuers and investors in European IPOs. But the first quarter of 2018 still saw more than twice the total IPO volume seen in the same period in 2017, with €13bn raised compared to €5.5bn in 2017, including several transactions of over €1bn. Books were generally covered quickly and investor demand was strong, despite some increased price sensitivity on the back of the return of volatility. So, can European IPOs still be successfully executed in the rest of 2018?

“With the return of volatility this year and a busy pipeline, the IPO market is presenting some new pricing challenges. Underlying investor demand, although selective, remains high and we expect successful new listings in the coming weeks and months”

- Stephanie Arnaud
Co-Head of Equity Capital Markets for France, Belgium and Luxembourg at Societe Generale CIB.

An impressive diversity of sources of planned equity capital market (ECM) activity is likely to underpin the IPO market for the rest of the year. Private equity investors are on the hunt for opportunities to sell holdings on the public markets, corporate spin-offs are on the increase and there are some significant privatizations planned in countries including France.

The first quarter of 2018 saw German IPOs draw much of the attention in the European market, as Siemens Healthineers raised €4.2bn in the second biggest deal from the country in recent decades, and Deutsche Bank managed to raise €1.3bn from the sale of part of its asset management business DWS. Further German IPOs are planned for the rest of the year, but issuance from France and other countries is expected to account for a growing share of total European business as 2018 develops. 2017 saw 15 IPOs from France for total fundraising of over three times the level seen the year before, including the Carmila re-IPO led by Societe Generale as global coordinator. The biggest deal of the year from France, according to Dealogic, was Societe Generale’s IPO of a 20% stake in its auto leasing subsidiary ALD, which raised €1.17bn and accounted for approximately one third of the total issuance for 2017 of around €3.1bn.

In 2018, the French IPO market should be animated by private equity sellers in various sectors. Delachaux, a global leader in industrial solutions for rail infrastructure and diversified industries, has announced its intention to float.

The 2017 ECM market saw significant equity fundraising by European banks, mainly in the form of some giant rights issues, but also featuring a €3bn IPO from Allied Irish Banks.

This year should see further financial market flow but with more of an emphasis on funding growth in sectors such as fintech, rather than the launch of mega deals designed to strengthen capital at big European banks. Europe is also seeing ongoing interest in importing some equity capital market structures that originated in the US, such as the special purpose acquisition company. While new fundraising ideas move smoothly between regions, it remains to be seen whether trade tensions between the US and Europe driven by politics will end up causing disruption that spills into equity capital markets.

The escalation by the US from rhetoric about trade imbalances to actual proposals for tariffs in markets such as steel has certainly alarmed investors, on both sides of the Atlantic. There is still hope that disputes can be resolved without serious disruption to markets and ultimately real economies, however. And in the meantime, strong underlying economic performance is helping to ensure that the European IPO market remains in good shape, despite the rise in equity volatility and concern about geopolitical tensions.

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