Hold your horses: IONOS to lead 2023 IPO pack but investors urge valuation reign in

Data Insight ECM Pulse 16 January

Hold your horses: IONOS to lead 2023 IPO pack but investors urge valuation reign in

  • IONOS ITF expected this week with heavy demand for early meetings
  • Bankers and investors highlight tricky valuation discussions ahead

Equity capital markets have been quiet in the first two weeks of 2023, but sources are hopeful that two upcoming bellwether IPOs will set the market off on the right note.

IPOs were a rare beast in 2022 and while Europe was blessed with one of the largest and most spectacular listings in recent years, the EUR 9bn listing of Porsche AG [ETR:P911], very few others were able to get enough momentum to even cross the starting line.

Markets started off in 2023 on a more positive note, with Europe’s Stoxx 600 rising 5.6% year-to-date, outperforming their US counterparts and filling the hearts of Europe’s IPO bankers with some much-needed post-Christmas cheer.

United Internet [ETR:UTDI] is poised to take advantage and is close to launching an IPO of IONOS, its web hosting business, this fortnight, according to two sources close to the deal.

While there is always a possibility of the trade being postponed, the deal is expected to be launched as soon as Tuesday, January 17, said a third source.

The transaction will be sizeable. United Internet is keen to secure a EUR 5bn valuation for the asset and as such has been searching for possible cornerstone investors to back the deal, although discussions have not come to fruition yet but were progressing, said the third source.

Notoriously sentiment-driven, IPO markets would be buoyed by strong pricing of the deal and consequent upwards aftermarket trading, both bankers said. This would encourage other issuers to accelerate plans and take advantage of this market window; but should issuers push prices the door for new listings will slam shut.

Valuation ‘no-brainer’

Most of the sources speaking to this news service said the importance of IONOS’s listing to the health of the overall IPO scene cannot be understated given the impact it will likely have on the rest of the market.

Pricing on this deal could determine the mood music for the rest of the early 2023 window. If the deal is too expensive and trades down, or does not price at all, it will leave a bad taste for the rest of pipeline to overcome.

An ECM investor judged IONOS’ reported EUR 5bn valuation as “expensive”, adding that there had been a lot of talk about benchmarking IONOS to large US peers, but this would be a hard sell.

United Internet has reportedly been trying to benchmark IONOS against US web hosting firms such as GoDaddy [NYSE:GDDY]. But the American firm had revenues of USD 3.8bn in 2021 compared with IONOS’ 2021 revenue of EUR 1.1bn, according to corporate results.

A second investor said many buysiders were sitting on big positions from IPOs in 2021 that are still underwater as well as shouldering general equity market losses from last year.

“I think it really has to be a no-brainer for many investors to look at an IPO at the moment,” he said confirming that he thought it was unrealistic to directly compare IONOS to a business like GoDaddy, which is over three times in size. Unless United Internet could find a sovereign wealth fund to buy the IPO at its price, it might need to temper valuation hopes to satisfy Europe’s long-only community.

The first investor added though that the company was of high quality and that the German IPO market was in a good place after the IPO of Porsche. If the seller does not push the price too high, the IPO should be a success.

The third source said that there was a huge amount of pre-deal interest to meet the company, but all sources close conceded valuation discussions were likely to be arduous.

The fact the deal is coming from a respected corporate seller is a positive for investors, one of the sources added, guaranteeing a strong supporter of the stock once listed. This should mean United Internet will be pragmatic over valuation to get the deal done and complete the carve-out, added the first investor.

Alongside United Internet, private equity firm Warburg Pincus must also be satisfied with the price tag, after buying a 33.33% stake in IONOS in 2016 at an implied valuation of EUR 2.55bn.

Next in line

Italy’s Euro Group Laminations is also on the verge of launching a listing, which would value the firm at EUR 1.5bn, for an IPO of around EUR 500m.

Producer of steel component primarily for the electric vehicle industry., Euro Group Laminations produces presents a solid ESG story that would play well should the deal come to fruition, said one ECM investor.

It is a new year, but the same old dilemma prevails. IPO investors won’t take a punt on anything they deem too expensive and a wiggle from sellers is also going to be required to get transactions across the line. Even Porsche was an exercise in pragmatism, with the company having to price at a significant discount to Italian peer Ferrari [NYSE: RACE].

United Internet, Warburg Pincus and Euro Group did not reply to request for comment by the time of publication.

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