The Good, the Bad and the Ugly: We Soda’s retreat continues broken IPO narrative despite flourishing follow-ons

Data InsightECM Pulse 19 June

The Good, the Bad and the Ugly: We Soda’s retreat continues broken IPO narrative despite flourishing follow-ons

We Soda’s decision to abandon its London listing last week perpetuates Europe’s endless IPO malaise. But with primary and secondary follow-ons flourishing, there are bright spots ahead.

The IPO market in Europe can often feel adversarial, as if investors and issuers are two western gunslingers playing poker in a frontier saloon, waiting for the other side to lose their nerve.

This is why deals are not working.

In Europe this year, issuers and investors are haggling over price to such a point that there is no confidence in the aftermarket, unlike the recent IPO of Kenvue [NYSE:KVUE] in the US, where investors felt they got a good deal and went back for more in trading.

As seen with We Soda, some issuers are folding their cards and leaving the table early.

The poor fortune of IPOs in Europe this year has puzzled some given the rebound in benchmark equity indices and European follow-on issuance. But bankers cannot seem to translate this pick-up into IPO momentum.

Pulled IPOs are anathema to equity capital markets. Both issuers and investors resent the waste of time.

As reported last week, there was a deal to be done on We Soda, but investors were demanding as much as a 35% discount to fair value, at around USD 7bn at the bottom of analyst estimates.

“It was a hugely unfortunate situation; these investors had done an enormous amount of work and many think it is a great business, but the market backdrop meant there had to be a massive discount,” said a source close to the IPO.

One down, three to go

With We Soda out of the race Thyssenkrupp Nucera, Hidroelectrica and CAB Payments’ listings remain live.

Issuers yearning for a priced IPO followed by strong post-listing trading will have to swallow the same tough medicine presented to We Soda, bankers speaking to the ECM Pulse warned.

There is a possible exception for Hidroelectrica, which is planning to anchor its IPO with local money, akin to the strategy of some Middle Eastern IPOs, some said. Companies desperately need to start reassessing IPO priorities, one investor said, pointing to Kenvue’s deal as a blueprint.

Investors clamour for perspective, empowered by their upper hand in this buyers’ market.

“A float of say 10%-15% of the company is not a big deal to take an initial discount on. If it is worth 10 times more, let the market value it at that level after it prices,” one added.

Most issuers in the market do not need to do an IPO, the investor said, adding that there is some confusion among buysiders on the rationale on launching deals if issuers are not willing to engage with investors.

“The IPO market has not changed between this week and two weeks ago, sizeable IPO discounts well into the 30% range are a known factor” said an ECM banker. “It is a hard situation because we continue to see an equity market that is trading fine, but underlying recession risk and rate hikes means there are fears of a draw down at some point heading into summer.”

While there is some engagement from hedge funds in new listings, the lack of commitment from Europe’s traditional long-only giants after years of poor IPO performance coupled with macro worries is a problem that Europe has yet to overcome, another banker said.

“Some of the big mutual funds are just taking the view they don’t like IPOs and unless it’s something huge like Porsche or ARM, they don’t care,” he added.

Not all bad news

Lower equity market volatility means that beyond IPOs, ECM in Europe is flourishing. Last week, UK gaming company Entain [LON:ENT] raised GBP 504m for M&A financing, while Spain’s Almirall [BME:ALM] banked EUR 200m of capital for balance sheet strengthening and acquisitions.

In the secondary market, there were big block trades in Polish e-retailer Allegro [WSE:ALE] and British American Tobacco [LON:BATS], continuing momentum from a blockbuster May with issuance high and pricing tight across huge transactions.

The fortunes of European ECM deals outside of IPOs remain very strong, another ECM banker said, adding that a wave of issuers are lining up to add to the primary pipeline to either fund M&A or clean their balance sheet ahead of expected economic turbulence.

He added that issuers were “waking up” to the possibility to do more equity financing, with a pick-up in convertible bond issuance also expected over the weeks ahead.

With debt expensive and equity investors willing to put on risk outside of IPOs, there is a significant tailwind behind the European follow-on scene. IPOs might be shot down, but there are deals to be done for those than can hold their nerve.

Did you enjoy this article?

Add the following topics to your interests and we'll recommend articles based on these interests.


Seamlessly connecting banks and investment firms

the Dealogic platform is a single solution that gives you integrated content, analytics, and technology

Get access today