“Bigger is better” is the mantra in European equity capital markets, and investors expect to focus on the big-ticket IPOs of this window, but that doesn’t mean banks should forgo smaller assets with a strong thematic angle.

Europe’s most notable listings before Easter – the successful CHF 2.3bn IPO of Galderma Group [SWX:GALD] and the underperforming EUR 889m listing of Douglas [ETR:DOU] –  has cemented a narrative that mid-cap companies will struggle to execute IPOs.

However, the best performing new listing in Europe so far this year has been German defence contractor Renk Group [ETR:R3NK], slotting nicely into portfolios of investors hungry for European defence exposure at a time the continent’s security is especially topical, as flagged by ECM Pulse last year.

With a market cap of just USD 1.6bn-equivalent at IPO, Renk is far from the profile of Galderma valued at USD 14bn-equivalent at IPO, yet the German firm was the better investment, soaring 86% in one week compared with Galderma’s 19.53%.

While both trades have, rightly, been lauded after a dreary year, or two, for Europe’s IPO market, Renk’s success shows companies don’t necessarily have to be mega caps to be a listing success.

Read the room

If a company doesn’t have size, then there has to be a compelling reason to buy.

Financial services has been an equity story that investors have been largely supportive of since interest rates began to rise at the beginning of 2022, said an ECM banker. Among the handful of smaller assets prepping for IPOs in the next few weeks is Italian challenger bank Banca Progetto, backed by Oaktree.  

The deal is likely to be supported by specialist investors, said the ECM banker, adding that it was the sort of smaller company that could succeed in a discerning IPO market. “I am not sure it’s an absolute must-own, but it’s a deal that could work given rates and FIG having a natural investor base,” an ECM investor added.

Three sources also confirmed that Portuguese hospital operator Luz Saude and owner Fidelidade are set to meet this week over whether to pull the trigger on an IPO. The investor noted that while he was not close to the deal, there were some question marks over the asset.

Fidelidade declined to comment.

Another mid-cap IPO the investor backed to succeed was French software as a service company Planisware, which cancelled an IPO attempt last year but is keen on relaunching the process this year.

“Planisware could replicate Renk’s market return and go out with the same range which would now work well,” the investor said. “The market has rallied, the peers have done very well and that initial valuation now makes a lot of sense.”

Also joining the pipe is set to be Italian shoe company Golden Goose, but there remains some debate over the equity story.

Assets must have unique qualities that make them different from other listed exposures to offset a lack of liquidity in smaller names, said the first and a second investor. Just being a strong name in a given sector is not enough when there are listed peers with proven equity track records and more market liquidity.

“The problem with the smaller deals is you know you are going to be a core shareholder,” one of the investors added, noting buyside needs a lot more conviction when there is less opportunity to trade out quickly should the stock turn sour.

Heavy hitters turn heads

While there is some hope that smaller deals can work, the pipeline’s blue-chip stars will command most attention.

As expected, Spanish family-owned luxury conglomerate Puig is the big name of this IPO window, after announcing an intention to float on Monday, April 8.

The owner of brands such as Jean-Paul Gautier, Carolina Herrera, and Paco Rabanne is likely to lead Europe’s largest IPO this year, raising EUR 1.25bn in primary proceeds alongside a secondary component, which while still undecided is likely to be larger than the primary tranche, according to the company’s initial IPO documentation.

Puig is set to be joined by private equity giant CVC, as also reported by this column. These two large names are likely the only true ‘must buys’ of this IPO window, said the investors.

With Puig, and likely CVC, dominating investor thoughts over the next few weeks, small and mid-cap companies will need to stand out to succeed.

“You have to be an exceptional business if you’re mid cap,” said the ECM banker. “Investors were burnt during the 2021 vintage, where they overpaid for some assets. “IPO candidates with deals under USD 1bn need to ask themselves: what is my USP?”

Only the best will do.