An adage in IPO markets is that ‘great companies can list, no matter the market’ but while there are some huge transactions in the pipeline, most notably the listing of private equity house CVC, nerves are rising over increased escalation in the war between Israel and Hamas and rising volatility indices.
Despite exuberant reports last week that CVC was on the cusp of launching its long-awaited IPO in Amsterdam, three sources close to the deal told ECM Pulse that any talks of an imminent launch were premature and said that the private equity firm still has no fixed timeline for a deal.
With the market backdrop deteriorating there are some concerns among those close to the deal about launching into what is clearly a troubled market, all three said.
The CBOE’s much-feared Vix volatility index is trading above 20 having risen by over 30% this month alongside an escalation in the conflict between Israel and Hamas following the latter’s attack on October 7.
“The war has filtered into equity markets and people are now very focused on the geopolitics,” said one of the sources who is also working on several other transactions.
An ECM investor confirmed that market talk had quietened and that volatility was now working against potential issuers, particularly those seeking to do an IPO before year-end.
“A spike in the Vix above 20 is problematic for IPOs and it’s been there for three days now, said the investor. “It’s hard to know though how much of the market sell-off is directly due to the war or thematic trading in reaction to the spike in the Vix.”
For ECM any increase in volatility is detrimental to new issuance, particularly for high-risk IPOs. Also, the closer it comes to year-end the more risk-averse investors become given most reports annually.
ECM volumes across Europe have fallen since the meeting of the US Federal Reserve at the end of September pointing to US, and therefore broadly global, interest rates staying higher for longer.
The war in the Middle East has now compounded what was for many a more bearish outlook for equities.
CVC IPO decision flexible
This is not to say that there is not a deal that could be done before the end of the year, but no decision has been taken yet on pulling the trigger.
“CVC has plenty of options,” said one of the sources. “There was an option for this week, later in the year, and even next year.”
The second source reiterated that CVC would be “patient” when analysing the right window to launch an IPO and that the private equity firm had delayed before, in March 2022, after Russia invaded Ukraine. The third also reiterated that a deteriorating market backdrop so late in the year was hardly the ideal backdrop for an IPO launch.
“It is an exceptional asset, and it could go to market regardless,” said the first source but added that heightened market risk meant the issuer would not be rushed into launching an IPO that it has been working on for so long.
He added that his firm was even delaying accelerated primary capital raises as they did not want to deal with four days of market risk, let alone an IPO timetable. He added that markets were seemingly keeping a close eye on geopolitics and that further escalation in the conflict, like Iran becoming involved, could lead to a broader market sell-off.
Markets can move quickly and should they improve, and volatility drop, CVC could still feasibly launch a transaction and price before the end of November, possibly on an accelerated timetable, said the first source, but all reiterated no decision on that has been taken.
“CVC is such a well-known name it could do the IPO despite a war in the Middle East which won’t really impact its business, but it will want a good aftermarket,” the investor noted.
Private equity sell-off
Alongside generally negative markets, two of the sources also pointed to a fall in the shares of listed sponsors EQT AB [STO:EQT] and Blackstone [NYSE:BX] following results last week as another factor CVC was analysing in picking an IPO window. Blackstone is down 9.5% over the five days and EQT has fallen over 5% over the same period.
The trading of listed peers sunk the IPO of German defence contractor Renk earlier this month, and while CVC is a beast of vastly different proportions, it is unlikely to be blind to pressures on its listed peers given investor IPO discount demands throughout 2023.
Coincidentally, there was also a sell-down in EQT last week by partners in the firm, which came at a far smaller size than many had been expecting.
Sources previously speaking to ECM Pulse had speculated that an EQT sell-down could have been the latest mega-block of 2023, but the deal ended up being sized at just USD 363m equivalent.
A source close to the transaction said there could have been far more shares sold and others speaking to ECM Pulse this week said that reverse inquiries into banks for the deal meant a size of over USD 1bn would have been possible.
But the source close added that EQT partners were not willing to sell more at a level that they believed undervalued the business following a fall in its share price.
The few shares that did come up for sale were so popular that they priced at a premium to EQT’s closing price.
All the sources speaking to ECM Pulse this week said that there should be some read across from EQT to CVC.
There is little doubt that CVC can successfully price its initial public offering. But the question is, should it?
CVC and EQT declined to comment for this piece.
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