“It was the best of times, it was the worst of times” such was the juxtaposition of Europe’s IPO market last week with the pricing of the first two major IPOs of the spring window. While Galderma [SWX:GALD] soared in trading, German retailer Douglas [ETR:] soured, proving that Europe’s IPO market is far from being fully open for all.

EQT-backed Swiss skincare conglomerate Galderma closed over 20% above its IPO price on Friday, 22 March, while CVC-owned Douglas, which priced a day earlier was down around 15%, according to Dealogic data. The two deals, the largest in Europe of 2024 so far, highlight the different approaches ECM investors are having to different companies.

While large industry leaders, like Galderma, are being welcomed with open arms, businesses deemed more mid-cap, like Douglas, are struggling to get the sort of momentum required to secure an early trading boost.

“Directionally, the IPO market has improved, but I still think that in the mid-cap space, or where the asset is not a must-own, the sensitivity is high,” said a source close to the Douglas deal.

The Douglas book was multiple times covered, said the same source, adding there was considerable disappointment about how the deal had traded immediately after the IPO.

A second source on Douglas added that there was a hope that once the company had a chance to prove itself, through numbers and its own idiosyncratic qualities, it could recover in the next few months. He cited Italian gaming firm Lottomatica [BIT:LTTC] as an example of a company that initially traded poorly after IPO but then recovered.

However, he noted that there had not been enough big institutional orders in the Douglas IPO. “Listings that don’t have that dynamic are going to struggle initially,” he said.

An ECM banker away from the deal noted that negative fund flows meant many investors likely would not have had the firepower to support the Douglas share price in the aftermarket, especially if they were smaller or medium-sized local players.

Galderma, on the other hand, was chocked full of institutional buyers, according to a source close to that IPO, with around 400 lines in the book and the top 25 investors taking around 60% of the transaction with global long-onlies, Swiss institutions and healthcare sector specialists taking the lion’s share of the IPO.

“It was an incredible book,” he said.

Land of giants

The takeaway from both Douglas and Galderma is that the European IPO market is open, but selectively.

A fully open IPO market is when every deal can come, as long as they are priced attractively, like in 2021, said the banker. A fully closed one is the opposite, when nothing can price no matter how good a company is.

At the moment, Europe’s IPO market appears to sit between those two extremes, where investors are willing to fully engage with what they see as the best-in-class transactions, or smaller unique assets that sit in a hot sector or have an exposure that is difficult to replicate on the listed market, such as Defense-related IPOs Renk [ETR R3NK] and THEON [AMS:THEON] or Athens International Airport [ATH:AIA] which priced earlier this year.

All sources speaking to ECM Pulse noted that Galderma’s larger-cap, industry-leading, profile is one that will need to be replicated when the European IPO market comes back after Easter.

Several sources highlighted Spanish family-owned conglomerate Puig, owner of brands like Jean-Paul Gautier, Carolina Herrera, and Paco Rabanne, CVC itself and Permira-owned luxury footwear company Golden Goose, as the likeliest names leading the next cohort of larger European IPOs, confirming previous reporting by this news service as well as Dealogic’s predictive IPO pipeline.

Several sources noted that both Puig and CVC sit in the Galderma bucket of big, industry-leading, blue-chip names that investors are gravitating towards.

Europe’s equity capital markets are also clearly still liquid enough to absorb big deals, given that alongside the USD 2.2bn equivalent Galderma IPO, investors also welcomed a GBP 1.8bn sell-down in Haleon [LON:HLN].

This news service reported earlier this month that the Italian footwear company could have an enterprise value of just under EUR 7bn, putting it more in line with Douglas, and that some investors had concerns over the company’s valuation targets.

The source close to the Galderma deal said that Golden Goose might face similar questions to Douglas on quality and whether it is a ‘must-own’. But he added that the market selectivity was all part of natural IPO filtering and was “what the buyside is paid to do.”

Investors are clearly engaged, and willing, but are not going to jump on anything.

“I think larger companies are of more interest to the market than small mid-cap and there is no room to push on price now and this has been confirmed,” said a European ECM investor eying the post-Easter IPO window.

To misquote the end of Dicken’s Tale of Two Cities, if ECM bankers concentrate on only bringing the highest quality IPOs after Easter, it’ll be “a far, far better thing than they have ever done.”

Best to ignore Sydney Carton was heading for the guillotine at the time.

EQT and CVC declined to comment