Size matters, well at least it does for European IPOs, with sources telling ECM Pulse that they are pinning hopes to a small pool of multi-billion listing candidates to re-open the market.

That was why there was so much anticipation last month that private equity giant CVC would launch its Amsterdam IPO. It had everything; it was sizable, well-known, and was the sort of asset you couldn’t ignore.

Like Porsche [ETR:P911] last year, buyers would have had to have found a reason not to own CVC, rather than come up with a reason to buy it, as is the case with most European IPOs.

But, despite likely having enough demand to have priced an IPO, CVC decided not to go ahead in a market that remains far from easy at the end of the year.

The postponement adds to a bad quarter for Europe’s IPO market, summed up by a disastrous price reaction to a profit warning for one of the 2023 IPO class, CAB Payments [LON:CABP], and the cancellation of two live European IPOs; German defence contractor Renk and French software firm Planisware.

“You will have to have size to get an IPO going, good successful deals have to have that liquidity that investors want,” said an ECM banker pointing to IPOs needing to be sized at over USD 1bn to attract investors. “We have plenty of good clients looking at IPOs of around USD 500m and market caps of USD 2bn to USD 2.5bn, but I think that is too tricky even for a great asset.”

“They might have to wait until the end of 2024 or even 2025.”

As previously relayed to ECM Pulse, several sources looking at both Renk and Planisware stated that they were deemed too small to move the needle for many investors in a volatile market, despite the idiosyncratic qualities of both.

Investors, some still sitting on loss-making positions from the IPO class of 2021, have frequently expressed concerns over IPO liquidity to ECM Pulse throughout the year which makes smaller deals a far harder sell; investors are concerned about being trapped in losing positions.

Bigger deals also mean bigger IPO books, with longer tails and theoretically more demand to boost the stock in early training.

Europe’s best-performing IPOs in 2023 so far; Romanian hydroelectric power company Hidroelectrica [BUC:H2O] and Germany’s Schott Pharma [ETR:1SXP], were also the largest.

Big names in the works 

A second ECM investor also bemoaned the lack of deals in the IPO market and conceded that it was likely that the market would have to be reopened by a larger deal.

Thankfully, there are several major transactions that could play the role of market opener for European IPOs.

As previously reported by this news service, alongside CVC, there are other big fish prepping a new listing.

These include EQT-backed Swiss skincare company Galderma, CVC-backed German perfume and cosmetics brand Douglas and Renault [EPA:RNO] electric vehicle unit Ampere.

“Large-cap deals are dominating the pipeline now for next year; we are seeing PE-backed big companies that are often getting too big to sell and the public markets are the most obvious options,” said a second ECM banker.

A second investor though said that a focus solely on large transactions was the wrong approach for banks.

“We need banks keen to work on mid-cap IPOs, it’s not true that deals under USD 1bn don’t work, look at the Nordics and what happened with Rusta [STO:RUSTA], it was a smaller asset but targeted a local and high-quality investor base,” they said. “You can have successful deals, but you need a syndicate and marketing plan that is suited for that type of company.”

This year’s big Nordic IPOs have fared better than many of their Western European counterparts in trading, and both the second investor and a third ECM banker said the Nordics were somewhat of an anomaly to the large-cap only narrative.

But, like the Middle East, the Nordics benefits from deep-pocketed local equity investors keen to support home-grown stories, and bankers are often keen not to extrapolate lessons from those markets; other European IPOs typically depend on a smaller pool of large international asset managers to anchor new listings.

Ticking clock

The lack of these strong local investors means most European IPO candidates must be sizeable to have a chance, but timing is tough even for the very best names.

“As we look at into year-end is that there is no pipeline on obvious candidates in the first months of 2024,” said a third investor. “I don’t think that anything can really come until March at the earliest due to the usual cadence of the year, unless of course CVC decides to quickly restart its IPO.”

Market volatility has hit hard and fast in the last two years, as the teams on CVC and Galderma both know given their IPOs were first targeted for 2022, before Russia invaded Ukraine, as reported then by ECM Pulse.

Much of Europe’s IPO pipe for 2024 was also Europe’s IPO pipe in 2023 and, in some cases, for last year as well.

Issuers are still reluctant to suffer punishing discounts and expose themselves to prolonged market risk during bookbuild at a time when geopolitics is uncertain and economics turbulent, due to rising interest rates.

A delay until next March might mean issuers having to content with another market-stopping moment.