Down But Not Out: Advisers See Fall European IPO Revival
Issuers seeking initial public offerings are still preparing to implement their plans in the coming months, even as political and economic uncertainties linger following the U.K. voters' decision to leave the European Union, IPO advisers say.
"There is a clear impact on timing at the moment for the short term, but people are still looking to potentially do things in the autumn," said London-based White & Case partner Íñigo Esteve, whose primary focus is on IPOs listing on the London Stock Exchange. "Certainly everybody is wanting, or seeing the potential to be able to do deals... Issuers and bankers that are advising are happy to take things forward."
PricewaterhouseCoopers expects European IPO proceeds to more than halve in 2016, from €57.4 billion ($63.4 billion) in 2015 to €25 billion, according to a report published on Monday, July 11. The firm estimated that European IPO proceeds dropped 26% year on year in the second quarter of 2016.
While the June 23 EU referendum and the market volatility following the victory by the "leave" camp have dissuaded companies from holding IPOs in the short term, the sentiment among market participants bears little relation to the collapse of Lehman Brothers Holdings Inc. in 2008, advisers said.
Indeed, IPO transactions in Europe have not completely vanished. Financial company BGL Group, which owns the Comparethemarket.com price comparison site, was at the weekend reported to be preparing to issue its share on the primary market in the first quarter of 2017 for a value of around £2 billion ($2.6 billion), while Italian air navigation service provider Enav last week applied to list its shares on the Italian stock exchange.
All eyes will be on the British political arena and the exit conditions it secures from the EU. Today, Andrea Leadsom pulled out of the race for Conservative Party leader, paving the way for Theresa May to become the next prime minister. The Queen was expected to ask May to form a government on Wednesday evening.
"If she [May] comes up with a firm strategy or plan, that will lead to a degree of certainty that will be helpful to the IPO market," said White & Case partner Jonathan Parry. "This is primarily a political crisis, which has obviously made the economic headwinds worse...Talking to bankers and market participants, they are viewing this in a very different light from 2008."
Still, potential issuers are opening up their options to hedge their risks, another adviser said.
"We have certainly seen quite a few people dual tracking their exit strategy--looking for both exit via a traditional sale process through a trade buyer or private equity, and dual tracking an IPO strategy, and that really is hedging your bet as to which way the market is going to go," said Eleanor West, a partner with McDermott Will & Emery.
Advisers believe companies with defensive business models will likely lead the IPO scene once political and economic uncertainties clear up.
"If there is a pickup in activity once the political landscape becomes clearer, it's not going to be a speculative biotech company" said Parry. "A well-priced IPO with a good equity story -- once the landscape has a degree of certainty, you would hope that's exactly the kind of transaction that could get away."
Another adviser agreed that issuers have the will to proceed with IPOs.
"We are still seeing a number of companies continuing to plan for IPOs in the fourth quarter of the year," said KPMG partner, Linda Main, who oversees public offerings. "I'm not anticipating a complete shutdown by any means. I think there still will be IPOs over the next few months."