Hold the fat lady: Tight AIB sell-down shows chances abound for blocks amid elusive IPO pipeline

Data InsightECM Pulse 7 November

Hold the fat lady: Tight AIB sell-down shows chances abound for blocks amid elusive IPO pipeline

While 2023’s IPO market looks pretty much done, equity market professionals should not leave their desks yet as deals emerge in the blocks market.

On Monday night, the Irish government re-entered the fray, placing a EUR 514.83m slice of Irish bank AIB Group [DUB:A5G] at a far tighter level than previous trades.

The deal priced at EUR 3.93 a share, a 3.2% discount to the close. The concession on the 5% stake sold was tighter than the 4.76% discount on another 5% sell-down in June and represented a Price of Liquidity* ratio -0.6x the size of the stake sold, compared with a PoL ratio of -0.95x for the June deal. Monday’s transaction was substantially tighter than a previous government sell-down last November, which was priced with a PoL ratio of -1.02x.

The AIB deal was Europe’s first USD 100m-plus transaction since a USD 363m secondary block trade in EQT AB [STO:EQT] on October 19, sold by partners in the firm.

Increased investor demand for year-end alpha isbuilding substantially, said an ECM banker. “All the talk we are getting from investors is that they would love to see more block trades,” he said.

A banker involved in the AIB trade said that this increased demand fed through to Monday’s deal with the book covered over 10x and four large existing shareholders looking to top up their holdings.

While the identity of those shareholders is undisclosed, Vanguard, BlackRock, TIAA Fidelity Management and Research and Jupiter were among AIB’s top shareholders on 6 June, according to Dealogic Institutional Analytics.

Hunting for last-minute alpha

Many investors remain under-positioned across equities and therefore are looking to pile on more exposure towards the end of the year, amid benchmark indices that remain stubbornly bullish. One ECM investor added he would be happy to look at five interesting blocks a week up to the end of November, should issuers be willing to sell shares.

Markets have shifted following a mostly risk-off October, with sizeable moves up in the Euro Stoxx 600 and S&P 500, following the US Federal Reserve’s decision to not raise interest rates, leaving many fund-mangers concerned over performance vs their own index benchmarks.

Both bankers pointed to huge single stock moves during the most recent results reporting season, with companies that have missed earnings brutally punished in trading and companies that have beaten expectations being similarly rewarded.

Positive results for AIB led to increased reverse enquiries, especially as the Irish government was a known seller given previous deals, said the banker involved.

Certain sectors remain more interesting than others. Banks, alongside other cyclical sectors like autos remain in high demand, said the first banker, particularly in Europe. Both the Stoxx Europe 600 Automobiles & Parts index and the Stoxx Europe 600 Banks index have outperformed the main benchmark YTD.

Big liquidity events, like the AIB block, give investors a chance to put far larger sums to work than they could normally deploy in regular trading.

Even though the AIB trade was a good deal for the Irish government, it was equally successful for investors with shares trading up 4.5% the morning after the block, higher than the previous trades on day one.

Ireland’s Department of Finance did not comment on dynamics surrounding the AIB deal beyond a public statement saying the government was pleased with the result and that it would assess options once its lock-up on the remaining stake expires on 7 February, 2024.

Other financial services trades could also be of interest to investors; on 11 November, Munich Re will be able to sell a 1.8% stake in UK Insurer Admiral Group [LON:ADM] following a lock-up expiry, with the latter’s shares up almost 23% since the last sell-down in November 2022.

IPO end-game

The much-vaunted revival of the European IPO market, so heralded in early September, appears to have ended with a whimper after a string of postponements. At the end of last week there were widespread reports that private equity giant CVC would not, after all, be riding in to save European IPO market volumes.

The decision confirmed reporting by ECM Pulse a week prior that CVC was unlikely to charge quixotically towards an Amsterdam listing, despite widespread market reports that a deal was imminent, given rising volatility.

CVC, while undoubtedly the largest possible 4Q IPO candidate, is not alone in deciding to wait a little longer on the sidelines. Germany’s DKV Mobility and Apollo-backed Oldenburgische Landesbank (OLB) also decided to pull their 2023 listing attempts.

With markets so changeable, most IPO issuers are unwilling to take the risk on a prolonged execution window, said one of the bankers and the investor, which makes deals in the accelerated market far more likely even if an IPO candidate is in high demand like CVC.

There may be a lack of big IPOs before the end of the year, but ECM bankers and investors need to stay alert for more opportunities in the blocks market. It's late but the show isn’t quite over yet.

* Price of Liquidity is a ratio used by Dealogic to track how much investors are charging to provide liquidity in the block market by analysing measuring discount vs the size of stake sold.

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