He who humbles himself: In Europe’s IPO market, seller humility leads to long-term success

ECM Explorer 17 August

He who humbles himself: In Europe’s IPO market, seller humility leads to long-term success

A modest man with much to be modest about. This is how Winston Churchill once described Clement Atlee, but the Labour leader would eventually go on to become one of Britain’s most celebrated premiers and social reformers after defeating the great man at the General Election of 1945.

This lesson is pertinent for sellers of upcoming European IPOs. As of writing, Europe’s large IPO market performance is statistically flat for the year, down around 0.2% on a weighted basis. Not outstanding, by any means, given the benchmark European Stoxx 600 index is up around 6% YTD.

But it is better than many had feared after the first two big IPOs of the year — the listings of IONOS [ETR:IOS] and Eurogroup Laminations  [BIT:EGLA] — traded down immediately after pricing, following investor reticence over what they deemed expensive valuations.

Recent IPOs have helped, particularly the listing of Thyssenkrupp’s [ETR: TKA] Hydrogen division Thyssenkrupp Nucera [ETR:NCH2], which priced at a substantial discount and is now trading more than 12% above its IPO price.

A flat year though is befuddling, given strong underlying indices and a narrative of global recovery mid-way through 2023.

It is also in stark contrast with 2022, a far worse year for underlying equity markets due to Russia’s invasion of Ukraine and rising global inflation causing central banks to aggressively hike rates and stock markets to fall.

Large IPOs priced last year popped at a weighted average 6% in their first week and had grown to 14% above issue price at the end of their first month. As of now, the class of 2022 is trading at a weighted average of 26% above issue price.

Issuers were understandably more cautious last year, with even the mega IPO of Porsche [ETR:P911] coming at a substantial discount to its most obvious peer, Italian supercar manufacturer Ferrari [NASDAQ/BIT:RACE].

This caution has also rewarded issuers, many who still sit on majority stakes after an IPO.

They now own a far more valuable company than perhaps they might have done had they pushed pricing too hard at IPO. Some have later benefitted in subsequent sell-downs, like the owners of Italy’s Industrie De Nora [BIT:DNR], now trading around 44% above its cut price listing valuation.

Deals priced during 2021, a time of investor exuberance and raging bull markets have fared far worse over the long-term. Investors still sit on weighted losses of 33% from large IPOs that year and many sellers are unable to continue monetising stakes given this vast valuation depreciation.

Throughout 2023, investors have looked back to the performance of 2021 IPOs as a reason to be wary of any deal deemed too expensive; only at big discounts can deals be done.

The earliest IPOs of the year were deemed too pricey but Thyssenkrupp’s willingness to be flexible on Nucera has lifted spirits.

While many IPO sellers have told their banks they are waiting for a better market to aim for a higher valuation, there are still some IPOs on the cards for 2H, notably Schott Pharma, DKV Mobility, defence contractor Renk, German bus operator Flix and Portuguese hospital group Luz Saude.

France’s Planisware is also eying a possible autumn IPO after positive investor meetings.

Everyone wants a great price but, sometimes, there is something to be said for a little modesty.

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