US, European IPOs show signs of life after lengthy drought
30/06/2023 15:08
By Echo Wang and Pablo Mayo Cerqueiro
NEW YORK/LONDON, June 30 (Reuters) - A lackluster IPO
market is showing signs of life as a flurry of deals in the
United States and Europe raise hopes that a recovery may be in
sight.
The market for initial public offerings (IPOs) has been in
the doldrums since the start of 2022, when Russia's invasion of
Ukraine and a spike in inflation dampened risk appetite as
investors fretted over relentless interest rate rises.
With investors now predicting an end to the Federal
Reserve's rate hikes later this year, optimism has resumed.
The VIX, an index that measures volatility and is known as
Wall Street's "fear gauge", has consistently been below 20 - the
threshold above which market jitters are seen as too hostile for
IPOs - for much of the second quarter. It is now at one of its
lowest levels since February 2020.
This allowed thrift shop chain Savers Value Village SVV.N
to raise $401 million in its New York IPO this week, more than
it originally set out to. Investors continued to snap up its
shares, with the stock closing up 27% on its first day of
trading.
"It feels a lot more upbeat than June 2022," said Aloke
Gupte, co-head of international equity capital markets (ECM) at
JPMorgan Chase & Co, which led the Savers IPO as an underwriter
and is managing the listing of money transfer group CAB Payments
IPO-CABP.L in London.
"It doesn't necessarily manifest in deal volumes yet, but
the outlook is very different versus last year," said Gupte,
whose responsibilities span Europe, Africa and Asia.
Two other companies also pulled off IPOs in New York -
energy infrastructure services provider Kodiak Gas Services
KGS.N and insurer Fidelis Insurance Holdings FIHL.N , though
at the expense of downsizing the offerings.
"Whilst we are closer to calmer waters, it is still not
entirely plain sailing yet," said Tom Swerling, global head of
ECM at Barclays, which acted on both the Kodiak and Fidelis
transactions.
Earlier this month, shares in U.S. restaurant group Cava
CAVA.N rose in their market debut to nearly double the IPO
price, in one of the clearest examples yet of returning market
appetite.
"(The Cava IPO) has shown that the market is starved for new
issuance from high growth companies," said Paul Abrahimzadeh,
co-head of ECM for North America at Citigroup, one of the banks
leading Cava's offering.
EUROPE IPOS ON THE WAY
In Europe, three IPOs are on track to be completed by early
July, but two of them have already had to moderate their
valuation expectations.
Thyssenkrupp's TKAG.DE hydrogen unit Nucera is seeking a
market capitalisation of 2.7 billion euros ($2.9 billion), below
earlier expectations of more than 3 billion euros.
Britain's CAB Payments has taken the rare step of setting a
fixed price for its share offering that values it at the lower
end of its previously reported range.
Romanian state-backed energy producer Hidroelectrica,
however, is aiming for a valuation of as high as 10 billion
euros in its domestic IPO, much closer to the figure that
selling shareholder Fondul Proprietatea FP.BX has on its
books.
If successful, the deals could encourage other companies in
Europe to follow suit. Market confidence had taken a hit after
natural soda ash producer WE Soda decided to cancel its London
IPO amid heightened concerns over the health of the market.
Dual-listing activity is also helping warm up the market.
Hong Kong-listed yacht maker Ferretti began trading in Milan
this week after selling 265 million euros worth of shares.
U.S.-listed beauty group Coty COTY.N is also exploring a Paris
listing.
Bankers attribute the latest pickup in listings partly to a
frenzy of stock sales in publicly traded companies that has
unfolded in recent months, helping pave the way for new issuers
to come forward.
These have included several multibillion-dollar sales in
blue-chip names like beer maker Heineken HEIO.AS and General
Electric spin-off GE Healthcare Technologies GEHC.O .
"This has been the year of the jumbo follow-ons in a way
that we haven't seen in many years," said Andrew Briscoe, Bank
of America's head of ECM syndicate for Europe, the Middle East
and Africa (EMEA).
Advisers expect more companies to resume their IPO plans
after the summer lull heralding a busy 2024, but investors
remain cautious about a full comeback of the IPO pipeline in
spite of market rallies in recent months.
"While people feel better about the market overall, for the
individual issuers, the picture may not have changed as much as
the markets would suggest," said David DiPietro, head of private
investing at T. Rowe Price.
($1 = 0.9169 euros)
(Reporting by Echo Wang in New York and Pablo Mayo Cerquiero in
London; Editing by Elisa Martinuzzi and Mark Potter)
((E.Wang@thomsonreuters.com; +13322191785; Reuters Messaging:
@deer_echo_))