Dealtalk: European IPOs need to be cheap to win over investors
LONDON (Reuters) - With Europe's market for new stock market listings in the doldrums, bankers and investors seem agreed on what's needed to give it a shot in the arm.
"The simple answer is larger IPO discounts," said one global head of equity capital markets (ECM) at an international bank.
Easier said than done. Owners adamant about the value of their holdings are proving reluctant to compromise on price, leaving IPO bankers frustrated at deals undone.
More than 15 deals in Europe have been pulled since the start of the year and most of those were completed are trading below their offer price, including commodities trader Glencore (GLEN.L) which raised $10 billion from a high-profile float.
"The track record for new issues in Europe over the last year is quite patchy; investors are rightly more jaundiced with the whole process," said Robert Talbut, chief investment officer at Royal London Asset Management, which manages more than 40 billion pounds ($65.7 billion).
Russia's Global Ports on Monday joined a string of companies which have announced plans to list before the summer, including Telefonica's (TEF.MC) call center unit Atento, German fashion retailer Adler and Polish coking coal producer JSW.
But the decision by upscale clothing maker Moncler to postpone its listing, after Eurazeo (EURA.PA) agreed to take a stake at a valuation one source close to the deal described as a "significant premium" to what it could have achieved in an IPO, highlights the state of the market.
"The IPO market needs a bit of a boost. The buyside is starting to become skeptical and unless it is really cheap, they aren't necessarily going to buy," said one ECM banker. "If you want to tap the public market you are going to have to give up value."
NOT WORKING WELL
The difficult market is straining relations between bankers and investors, with the former blaming companies not willing to be flexible on price and the latter arguing that, under pressure for business in a quiet market, banks aren't bringing the most attractive companies to investors.
"I certainly remember coming out of lots of IPO meetings where you thought actually I really like that company ... and I've seen really nothing that's made me feel like that for quite a while now," said Catherine Stanley, UK fund manager at F&C Asset Management.
"It's a frustration," she added. "There is tension in the whole circle on IPOs between the companies that want to float, the brokers advising them, between brokers and fund managers ... the whole thing is not working particularly well at the minute."
As investors become less willing to participate in offerings, the few left interested in deals are able to exert more influence over the price, bankers said, with some demanding discounts to a company's own valuation of as much as 20 percent.
Without some successful deals getting done, there is little sign of this cycle breaking, particularly among the small and mid-cap sector which bankers say is struggling the most.
"When you are at offering sizes of less than $1 billion you have to really work very hard to get people to care," said one banker. "We need some memory of successful IPOs and we need investors to have more conviction, which will only follow after successful IPOs."
And the outlook is worrying bankers.
With the market set to virtually shut down for the summer from mid-July to September, there will soon be little opportunity to get deals done until much later in the year.
"I have some level of concern that if this volatility continues for three more weeks, then people are just going to look at us and say 'See you in September'," said the global head of ECM. "The pricing dynamics have definitely moved back in the favor of in the investor."
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