As the excitement of freshly listed Lottomatica wanes, advisors and investors are looking ahead to what’s next, with capital raises top of the list once corporate blackouts end.

Primary follow-on issuance has come through in dribs and drabs in 2023, but the few deals that got away have shown solid investor engagement.

TUI’s [ETR:TUI1] EUR 1.8bn cash call, one of the latest deals, was 90.9% subscribed, with participating shareholders having to contribute an extra 30.9% to cover the portion given up by sanctioned Russian oligarch Alexey Mordashov. The banks on the deal easily found enough demand for the remaining shares in a rump placement.

The success of the Tui deal and other large primary transactions this year chime with the sentiment of investors speaking to the ECM Pulse. All would rather take part in primary raises for large liquid companies than risking buying a position in an untested IPO.

For long-only investors, primary deals allow them to concentrate on their existing portfolio and invest more money in equity stories that they already know and like.

“Primary deals are definitely interesting for us especially given the huge debt maturity wall coming up,” said one ECM investor, adding that he expected activity to pick up after the end of results reporting.

Cap hikes are not only familiar but also profitable, providing alpha to investors since the start of 2020, when a raft of companies rushed to market to finance through the COVID-19 pandemic.

According to Dealogic data, primary raises in Europe since the start of 2020, accelerated and fully marketed, have yielded a weighted return of around 17% for investors. This has outperformed the Stoxx 600, which yielded just over 10% for investors over the same period, and massively outshone Europe’s IPO market which has generated a 13% loss for investors since the start of 2020.

Given that several of these deals were painful balance sheet restructuring transactions, including the rights issue of Credit Suisse last year which yielded large losses for investors, the overall alpha generated by European primary in the last two and half years is indicative of the gains that can be made.

It is no surprise then that investors – long and short – are reversing into banks to inquire about deals.

“Even those companies that might want to do balance sheet recapitalisations are getting attention,” said an ECM banker.

“We have at least three large rights issues and a couple of big primary accelerated transactions that are all on the agenda for this year,” he added.

A second banker said he was also working on several refinancing rights issues, but he added that launch dates were hard to pin down.

“The debt world is tough at the moment, and we find issuers hungrier about equity raises in a way that perhaps we did not see in the past few months,” he said. “Investors are also keen to make their own moves on portfolios and take part.”

A third ECM banker said his firm had also received plenty of inbound interest from investors on primary equity raises but added that some management teams are assessing their capital needs in a rising rate environment before deciding whether to pull the trigger.

Who needs cash?

Some of the deals being worked on are linked to M&A so are idiosyncratic in nature, the first banker cautioned, but there are also sectoral drivers beyond M&A-driven equity raising.

Renewable energy and infrastructure companies were in constant need of capital and would continue to raise equity to fund expansion, he said.

European real estate raises are also coming up in conversations, as depressed property valuations across the continent bring the sector into focus, particularly in the Nordic and German markets.

A second ECM investor confirmed that one of his priorities was examining the European real estate market in anticipation of a recapitalisation wave.

Although predictions of real estate capital hikes had been lingering for some time, investors are yet to see the flood of deals that they have been hoping for, said the first banker.

Trying to nail down the timing of primary deals, with so much preparatory work to be done by management and stock dilution to consider, is notoriously tricky.

However, with the cost of debt remaining stubbornly high and investors clamouring for more primary deals, companies have a clear window to raise equity to clean their balance sheet or to fund opportunistic acquisitions before year-end.

Tis the season for fresh equity cash.