The danger for capital markets in Europe is that the trend becomes a self-fulfilling prophecy
Europe increasingly appears to be a mere participant in the global race for IPOs. Several companies recently canceled their IPOs in Europe. Groups that are in vogue, such as Soho House, Turkish e-commerce company Hepsiburada and Italian vaccine vial maker Stevanato, have meanwhile opted to jump to the other side of the pond. A vicious cycle is forming.
ColisPrivé, a French parcel company backed by Amazon-com, postponed its IPO on Monday, blaming market conditions for its decision. Cattle sanitary products company Huvepharma withdrew its € 4 billion IPO in June, deciding to stay on the farm for the time being. The chemical company BASF stopped the IPO of its energy branch, claiming that the market estimates its oil and gas assets very little. Automotive component distributor Parts Holding Europe (Autodis is the trade name) and logistics operator Primafrio (valued at $ 2 billion) also withdrew their bids.
It is true that a few companies in more modern sectors, such as the Spanish renewables company Acciona Energía and Believe, a French digital music company valued at $ 1 billion, have gone public, but they had to settle for making their debut in the falls below its projected price range. Overall, European companies had a good first quarter, with sales of $ 25 billion in shares, but that momentum slowed to just $ 19 billion in the second quarter, according to Refinitiv.
The most fashionable company exits simply jump to New York, such as Hepsiburada ($ 4 billion) and Stevanato ($ 7 billion). Despite the threat of a currency crisis in his country, Hepsiburada gained 12% on its debut. Membership Collective Group, the parent company of Soho House, founded in London by posh British Nick Jones, is also on its way to the Big Apple.
Years of unremarkable returns after IPOs could explain some of the investment ambivalence. The Renaissance IPO index, which measures profitability two years after IPO, shows an increase of around 230% for IPOs in US markets, compared to 125% for IPOs in Europe, the Middle East and Africa in the last five years. The better prices after IPOs, possibly driven by technology stocks, have increased the reserve of investment capital in the United States compared to Europe, which also faces a relatively weak economic outlook.
The danger for European capital markets is that the trend will become a prophecy that ends up being fulfilled, especially for companies with great growth potential in sectors such as electronic commerce, technology or biopharmacy. The short-term remedy would be to keep valuations low to persuade skeptical investors to jump on the bandwagon. But the prospect of not attracting as much money as possible will eventually make the leap to the other side of the Atlantic who can.