Breakingviews - IPOs will remain endangered species in Europe

Nicolas Moreau, CEO of Deutsche Bank's DWS, and Claire Peel, CFO of DWS, ring the bell to start the share trade for the first time after its IPO on the Frankfurt Stock Exchange, Germany March 23, 2018. REUTERS/Kai Pfaffenbach

LONDON (Reuters Breakingviews) - Bankers hunting Europe equity raisings have had a fallow start to the year. They should get used to it.

On the face of it, the bad vibes are strange. European equities have recovered since a 15 percent selloff late last year and are now back where they were trading in October. But proceeds from initial public offerings in Europe this year are down 82 percent to $2.6 billion as of April 10, compared with $14 billion for the same period in 2018, according to Refinitiv data, and now stand at a decade low. Broader equity capital markets revenue is down 37 percent.

As might be expected, bankers are putting on a brave face. They report an uptick in activity in the past few weeks up to early April – both in terms of deals and pitching for new business. Two recent promising listings – of Nexi and Network International – might, they reckon, signal the end of a drought.

That doesn’t quite wash. The second quarter is typically the busiest for offerings anyway, and now is also the time bankers start preparing for another active IPO period in the autumn. Payments companies are in a league of their own, outperforming most sectors, and are thus easier to float. Volkswagen pulled its trucks unit listing – expected to be the biggest of the year in Europe – after it couldn’t get the price it wanted. Prominent IPO failures like Aston Martin and Funding Circle have knocked confidence, and on April 8 fellow IPO-puller Cepsa announced a private sale.

There are two more structural issues. Willing IPO investors complain of having relatively less cash to allocate to listings due to a long-term shift to passive investing strategies: assets under management in active managed funds fell in 2018 to 8.4 billion euros from 9.1 billion euros in 2017, according to Refinitiv Lipper data. Then there’s the completely opaque macro outlook. The International Monetary Fund says a disorderly Brexit threatens its already downgraded forecast for global growth, and an ageing economic cycle has made investors and companies more sensitive to data showing macroeconomic weakness.

Germany has suffered from weaker demand for its exports, softer consumer spending and new emissions standards that have depressed car sales. For 2019 at least, these factors seem more relevant than a few cheery payments IPOs.


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