Equity capital markets in EMEA are open again after a huge EUR 1.4bn block trade in German auto-maker Mercedes-Benz [ETR:MBG] priced last week. Now, talk of an imminent IPO launch offers hope that markets can bounce back quickly after a severe bout of volatility.
Only at the beginning of last week, bankers were saying that there was little chance of any serious risk-taking in a market battered and bruised by the most significant European bank since the financial crisis.
Markets calmed enough to reopen block trading activity. Mercedes-Benz behemoth stock sale by sovereign wealth fund Kuwait Investment Authority was the most notable deal.
Unlike the sell-downs in Dutch brewer Heineken [AMS:HEIA] and the UK stock market LSEG [LON:LSEG], both of which were flagged ahead of time by this column, the Mercedes trade came out of the blue from an unexpected seller, said several market participants. The deal was followed by a EUR 270m block trade in JDE Peet’s [AMS:JDEP] on March 29 sold by Mondelez International [NASDAQ:MDLZ].
Both trades were the first major transactions in Europe since the rescue deal for Credit Suisse [SWX:CSGN]. Although praised by market observers, the deals’ pricing shows that investors are charging more for blocks given the volatility that preceded them, according to ION Analytics’ Price of Liquidity (PoL) ratio.
on a 1.87% stake sold. The JDE Peet’s deal was even wider with a PoL ratio of -2.9x. Both had higher ratios than several trades earlier this month, sitting well above the average weighted PoL for February of -1.3x.
The other European mega blocks priced earlier this year fetched a PoL ratio tighter than -1x.
A source close to the deal said that KIA, which retains a large stake in the carmaker, was cognisant of the market volatility and happy to do the deal with a wider discount to make sure the block traded smoothly after pricing. KIA mandated Morgan Stanley to run the trade on an underwritten basis rather than conducting a risk auction for the tightest price as other government entities have done before a sell-down.
KIA did not respond to requests for comment, Morgan Stanley declined to comment.
“Blocks are working well although it’s not pricing is coming a little wider,” said an investor, adding that ECM buysiders were happy to put money to work in highly liquid names, like Mercedes, even when market risk is heightened.
While markets are open again for blocks in the run up to Easter, the outlook for IPOs looks a little murkier despite some hopes that activity could return.
All in on Lottomatica
Apollo-backed gaming firm Lottomatica is the last IPO candidate standing after Europe’s banking volatility torpedoed other issuers latent hopes.
There had not been much of a market to begin with, after the tepid listings of German web-hosting firm IONOS [ETR:IOS] and Italy’s EuroGroup Laminations [BIT:EGLA] in February, but there were at least three candidates including Lottomatica ready to attempt a listing before the collapse of Credit Suisse rocked markets.
EQT-backed consumer pharmaceutical company and perennial IPO candidate Galderma and German bank Oldenburgische Landesbank (OLB), another Apollo-backed asset, were also slated for listings after Easter, according to sources.
Sponsor EQT is reportedly delaying a Galderma IPO, with OLB’s chances of a deal plummeting given the pressure on bank stocks.
Although the report points to the banking crisis as a key factor, the investor speaking with this news service said that a valuation gap between EQT and the buyside is also likely to blame in Galderma’s delay.
This news service has previously reported that based on Galderma’s USD 3.4bn audited revenue in 2021, it could command a USD 20bn-plus valuation based on its possible peers L’Oreal and Alcon which had 2021 EV/revenue multiples of 6.4x and 6.5x; around EQT’s long-term reported target of CHF 22bn.
But investors may want too much of a discount. “They tried,” the investor said of EQT, adding “it could work but the expectation has to be lower.”
Lottomattica is now the only name intent on testing the market after Easter, according to three sources. If successful, the deal could set a positive precedent, one banker away from the deal said, but it first must overcome the difficulties facing the IPO market.
“There are no marginal buyers for IPOs at the moment” given a lack of performance for the asset class globally, the investor said.
It is not simply a case of deals being overvalued, he said, noting that IONOS and EuroGroup had been well covered but that there were few accounts willing to support them after pricing.
Apollo could still successfully price Lottomattica, but it might have “to price the deal to go” to attract enough investor demand and be successful in the aftermarket, he added.
One of the sources said that there had not been discussions yet at Apollo about lowering its IPO valuation hopes to get Lottomattica over the line, but there is some interest being registered by parties to cornerstone the deal, which could aid execution.
Apollo, Lottomatica and OLB declined to comment. Galderma declined to comment and EQT did not respond to a request for comment.
“We have some blocks and capital raises but IPOs are going to be 2H activity and some will be pushed into next year,” said an ECM banker adding that “it’s all part of this cycle.”
For liquid situations, particularly blocks, the market in Europe is once again open for business. For IPOs, though, all might depend on how the cards fall for Lottomatica.