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A little more concentration: long tails boost Renk and Athens Airport IPOs on public markets debut

The IPOs of both German defence contractor RENK [ETR:R3NK] and Athens International Airport (AIA) [ETE:AIA] changed the narrative of Europe’s broken IPO market by both pricing strongly and by surging in the aftermarket due to a highly concentrated allocation strategy creating the FOMO that Europe’s IPO market has badly needed.

Banks on both IPOs kept shares to a small number of investors on each, leaving investors hungry for more on day one.

The strategy of less is more paid dividends in the aftermarket with AIA finishing its first day of trading 11.7% higher on day one; Renk, backed by private-equity firm Triton, finished its first day of trading 31% above its IPO price. Both have continued to rise since.

“Renk was essentially pre-placed, so it was a really concentrated allocation and that creates lots of demand, Athens Airport was the same with a lot of accounts getting zeroed,” said an ECM investor.

A banker close to Renk told this news service that there were 150 lines in Renk’s book with the top 20 taking 80% of the upsized EUR 500m IPO.

“Allocations were not high in the tail-end of the book,” said a second source close to the Renk IPO, with a third adding that much of the tail was made up of smaller long-onlies rather than being dominated by hedge funds as is often the case.

A graph showing the price of shares

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Data as of Feb 9

The heavy concentration left 130 investors fighting for just 20% of the deal, around EUR 100m of shares. Renk also had two cornerstone investors with defence systems company KNDS N.V. and Wellington Management Company subscribing for EUR 100m and EUR 50m, respectively, around 30% of the final deal size, the second source close to the Renk IPO said.

“A long tail is the dynamic you need and hopefully everyone now has seen both Renk and AIA and realises that is how it should be done,” said an ECM banker away from Renk.

As this news service reported last week, AIA’s IPO book was also tightly allocated with more than more than 200 lines in its book and around 40%, or over 80 investors, getting no shares at all.

Don’t scrimp on the discount

The dynamic is starkly different with some of the IPOs which priced in 2023. Many in this cohort of deals priced at decent discounts, but lacked the demand tension in the book to bring people back for more on day one, with investors at the time criticising a lack of a long-tail, mainly due to issuers being too aggressive on price.

In Renk’s case particularly, Triton was willing to price at the same level where it had set an offer price for Renk in a more difficult market, despite peers trading higher since.

In 2022, Renk reported revenues of EUR 849m, with an adjusted EBIT of EUR 144.3m, and adjusted EBIT margins of 17%.

For the first nine months of FY23, the company reported revenues of EUR 653m, compared to EUR 594m in the same period a year earlier and EBIT of EUR 104m compared to EUR 98m a year ago.

Extrapolating the Y-O-Y growth in the first nine months to the final quarter, Renk could have revenues of EUR 915m and EBIT of EUR 151m for FY23.

This news service has identified Hensoldt [ETR:HAG] and Rheinmetall [ETR:RHM] as the best possible comparables for Renk.

For FY23, Hensoldt had an EV/EBIT multiple of 14x and Rheinmetall had 16.6x, with the average of the two coming to 15.3x.

On a peer EV/EBIT average, Renk would command a market cap of EUR 2.2bn, before any IPO discount.

Based on the final offer price, Renk’s IPO value of EUR 1.5bn (USD 1.65bn), was around a 30% discount to this peer average, in-line with what investors want to see from IPOs this year. The growth in Renk’s shares since IPO means as of Feb 12 it has a market cap of just above EUR 2.1bn, valuing the rest of Triton’s stake almost exactly in line with the listed peer average.

Fast track IPO

A remarkable feature of Renk’s return included a revolutionary deal structure which saw the deal take place through an accelerated placement more akin to a block trade than an IPO.

The banker close to Renk said that this was because the deal was essentially just picking up from where it left off when it postponed its IPO in 2023, with the same financial numbers and an investor base that was familiar with the story.

It also then added the two cornerstones to de-risk execution and the result was a hugely popular IPO that soared in trading afterwards.

Not all issuers will be able to replicate it, but other returning IPO candidates could see it as a model.

French software firm Planisware is reported to be seeking to restart its own IPO, which was halted last year. It postponed the previous attempt just after Triton pulled Renk in 2023 and could look to follow the German defence firm with a fast-to-market deal with heavy pre-placement and a quick bookbuild.

Another interesting candidate for a quick deal could be Swiss skin-care conglomerate Galderma, owned by private-equity giant EQT [STO:EQT]. Both Planisware and Galderma feature prominently in Dealogic’s predictive IPO pipeline for 2024 European listings.

While EQT never launched any Galderma listing, unlike Renk and Planisware, it has been one of the leading names in Europe’s IPO pipeline since 2022.

The second banker, who is close to the Galderma process, said that given Galderma has never been in the market on a live deal, it would be preferable to leave time for a comprehensive analyst roadshow and investor education process.

But he noted that most investors were familiar with Galderma and there was no reason it could not run a more accelerated process than a typical European IPO.

Two deals going well are not yet signs that the European IPO market is back to its best, but things are looking up.

Triton, Planisware, EQT and Renk declined to comment.