European flotations falter as investors hold line on price

European flotations falter as investors hold line on price

Reuters  | May 10, 2018 13:28

European flotations falter as investors hold line on price

By Dasha Afanasieva and Arno Schuetze

LONDON/FRANKFURT (Reuters) - An increasing number of companies are failing to get over the start line in this year's race to the public markets in Europe, the Middle East and Africa as investors take a harder line on the price they will pay.

German publisher Springer Nature (DE:SPGG) became the largest European firm to cancel its initial public offering (IPO) this year, and at least 13 others have pulled previously announced IPOs, although 52 still went ahead, an analysis of Thomson Reuters data shows.

Global IPO proceeds rose to $39 billion in the first quarter, the highest since 2014, with the proceeds from European listings more than tripling to $13 billion.

And IPOs in Europe Middle East and Africa have raised $16.5 billion, versus $11.2 billion in the same period last year.

But despite low market volatility (VIX) and a broadly positive economic outlook, this flood of new listings, combined with poor stock market trading performances of several of them, has given investors pause for thought.

"The market is oversaturated and IPO investors scared off by poor after-market performance of IPOs," an equity capital markets banker familiar with the Springer IPO said.

IPOs are historically a stop-and-start market and it is not unusual for companies and their advisers to miss the boat in terms of timing, or to have over-inflated price expectations.

Equity markets have not risen much in 2018: for example the FTSE 100 (FTSE) is down 0.7 percent year to date and the STOXX Europe 600 (STOXX), which represents 90 percent of the freefloat market of the European stock market is up 0.6 percent.

So while many companies in Europe have produced strong results, pricing for buyers and sellers has got out of kilter.

"While stock market indices are flat, good company earnings mean that companies trade on average at 15 times price to earnings, compared to 16 times last year. So investors are asking for higher discounts to buy into IPOs, something sellers are not willing to offer," the banker said.

The aftermarket is also playing a role with Swiss-based Ceva Logistics (S:CEVAL), Deutsche Bank's asset management unit DWS (DE:DWSG), Dutch bank NIBC (AS:NIBC) and Spanish real estate company Metrovacesa (MC:MVC) trading down in the days after their debuts.

Others have fared better, but overall gains are limited.

"While overall valuations have come off recent highs due strong corporate earnings, stocks of European companies which floated this year are only up approximately 2 percent on average," Christoph Stanger, co-head of equity capital markets in Europe Middle East and Africa at Goldman Sachs (NYSE:GS) said.

Equity capital markets bankers, those who advise companies on the pricing, timing and investor appetite for their IPOs, say that the market is not shut to new issuers.

"Investors are subjecting IPOs to strict scrutiny, they are kicking the tyres and looking under the bonnet, and they want to make sure that the valuations are attractive enough for a sustainable after-market," Craig Coben, vice chairman of global capital markets at Bank of America (NYSE:BAC) Merrill Lynch.


Flotations are not the biggest fee earners for equity capital markets bankers, but they drive secondary offerings and are often a bellwether for confidence in the market.

And listings are still being done, with software firm Avast (L:AVAS) trading lower on Thursday after pricing its IPO, the biggest by market capitalisation in London since July, at the low end of its offer range.

Others are also in the pipeline, with Blackstone's Middle East-focused education firm GEMs expected in the coming weeks.

"The market has seen an increasing number of cancellations given higher investor scrutiny. Despite this pullback, the market is open for high quality issuers as the recent successful IPO of Siemens Healthineers, the largest year-to-date in Europe, has demonstrated," Goldman's Stanger said.

Healthcare unit Siemens Healthineers (DE:SHLG) is trading 18 percent above its March issue price.

Meanwhile companies such as online betting firm Sky Bet have opted for a trade sale, despite lengthy preparations for a listing, while plans for a Frankfurt listing of German home shopping TV network HSE24 have also taken a back seat in favour of a sale, sources told Reuters.

The IPO market wobble has extended beyond developed markets, with cancellations in countries including Russia and Turkey, driven largely by geo-political factors.

Fresh sanctions imposed by the United States on several businessmen, politicians and related companies scuppered the flotations of Russian meat producer Cherkizovo Group and information technology firm IBS Group.

Meanwhile in Turkey, two of the three retail IPOs recently announced have been pulled, weeks before an election which may delay the next opportunity to head to the market.

© Reuters. The German share price index, DAX board, is seen at the stock exchange in Frankfurt

Macroeconomic risks, such as the uncertainly caused by U.S.. President Donald Trump's decision to withdraw from the Iran nuclear deal, have also weighed on IPO plans, with Turkey's lira to hitting a record low this week.

Related News

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes


Download the App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors. is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.