Back in block: Accelerated bookbuilds to lead autumn issuance as investors seek performance differentiators

Data Insight ECM Pulse 4 September

Back in block: Accelerated bookbuilds to lead autumn issuance as investors seek performance differentiators

By , Cristiano Dalla Bona, and Rachel Lewis

EQT, Haleon, DeNora among names on investors’ watchlist
Cap raising through convertibles benefits from pent up demand

We are approaching the final stages of the year for equity investors and, as many seek to up performance against stubbornly bullish benchmarks, big blocks are back on European agendas.

Buysiders are clamouring for large, liquid blocks to help funds catch up to stubborn equity indices, despite caution among many active fund managers, bankers say.

The S&P 500 is up around 18% year-to-date (YTD), the NASDAQ 100 up 42% and the Euro Stoxx 600 has risen by around 7%. Much of the US market’s gains has been around artificial intelligence with Nvidia [NASDAQ:NVDA] up over 200% YTD.

In fact, five stocks had reportedly been responsible for 96% of the S&P 500’s gains in 2023 as of May: Nvidia alongside Apple [NASDAQ:APPL], Alphabet [NASAQ:GOOGL], Microsoft [NASDAQ:MSFT], and Amazon [NASDAQ:AMZN].

“People forget about where sentiment and positioning on the investor side is,” said one of the bankers, adding “it has been a challenging year with many funds positioning for a pullback. Many of the most active funds have underperformed the indexes due to only a small basket of stocks leading the rally.”

The short-term gains from investing in large blocks could prove to be a “great alpha generator”, said one ECM investor, but a second cautioned that it was key to realise profits early on, with short-term deal alpha lost if the position was held for too long.

“Every ECM trade this year which I have had long duration on is where I have lost money,” he said.

Following this year’s earlier trend, there is a possibility of some mega-blocks over the autumn, with the investors and an ECM banker saying they expect a sell-down from partners in Swedish private equity firm EQT [STO:EQT], given lock-up restrictions for many expire in September; the exact timing of any deal remains uncertain though, the sources said.

One other possible large name in Europe is UK consumer healthcare company Haleon [LSE:HLN], after US drug giant Pfizer [NYSE:PFE] confirmed in June that it was its plan to exit the stock in a “disciplined manner”. The investors and banker confirmed they are on the lookout for a block in the stock.

EQT declined to comment while Pfizer did not respond to a request for comment.

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A trade in Italian water technology and hydrogen company Industrie De Nora [BIT:DNR] is also likely, one of the investors said, given demand for the sector and the rise in the company’s stock price. This news service has previously highlighted a possible sale in De Nora alongside fellow Italian firm Intercos [BIT:ICOS].

This news service’s Lock-up Expiry Tracker has also highlighted upcoming block opportunities following expiries in London Stock Exchange Group [LON:LSEG], Belgian chemicals distributor Azelis [EBR:AZE], Poland-headquartered e-commerce platform Allegro [WSE:ALE], and Israeli autonomous driving technology firm Mobileye [NASDAQ: MBLY].

Cap raising opportunities

The first large new deal of the season, a DKK 9.2bn trade in Denmark’s Coloplast [CPH: COLO-B] with proceeds for the acquisition of Icelandic wound care company Kerecis, was priced to strong demand with more than 200 lines in the book and several large mutual and institutional investors taking part in the deal, according to a source close to the transaction.

Several bankers speaking to ECM Pulse say that there are several primary raises in the works for the autumn, for acquisitions and debt restructuring.

This will take the form of straight equity as well as convertible bonds, with the latter asset class benefitting from pent up demand as investors are desperate to put capital to the work.

Such was the case with Italian oil drill-maker Saipem [BIT:SPM], which priced a EUR 500m convertible bond (CB) on August 31. The transaction was popular, with more than 120 lines in the book, remarkable for a CB in a sector that is not ESG compliant.

Benchmark eligibility fuelled aftermarket performance and made up for any ESG issues, argued a CB investor, adding it also compensated the fact that it could have been cheaper.

The European IPO market is also likely to get a smattering of listings before the end of the year and a European company, UK chip-maker Arm, is set to be the marquee ECM event of 2023 with its US IPO, despite concerns around its lofty valuation.

A bad result could have a knock-on effect around the globe, given its profile and size. Investors will let markets know how much risk they are willing to take.