• Elections across the globe, rate cut timings key factors to watch
• Athens International Airport IPO slated for early take-off

So, it begins. Christmas decorations are away and ECM pros across Europe are plotting the revival of the continent’s moribund IPO market with blue-chip names as the top bet of the season.

Equity investors have been cycling to quality since the start of 2022. For all the talk of the remarkable recovery of the US Nasdaq last year, the less glamorous, but blue-chip Dow Jones Industrial Index has been the better performer over three years, up over 20% compared with the Nasdaq’s 10%.

The S&P 500 is up by around the same level as the Dow, while the Stoxx 50 is also up by over 20% from three years ago.

Although this thematic was plainly evident in European ECM last year through the pricing of large blue-chip block trades such as London Stock Exchange Group [LON:LSEG], Heineken NV [AMS:HEIA] and Mercedes Benz [ETR:MBG], the only truly blue-chip IPO of the last two years in Europe was the EUR 9bn listing of Porsche AG [ETR:P911].

There now are some notable companies being prepared for listings in 2024, to play on the demand for high-quality large caps.

Spanish luxury giant Puig, owner of brands like Jean-Paul Gautier, Carolina Herrera, and Paco Rabanne, is one of the hottest names in the European pipe.

Private equity giant CVC, perfumery Douglas and EQT-backed skincare conglomerate Galderma, are also all targeting 2024 IPOs.

“Size and scale are going to matter. Frankly, we are going to need some flagship trades done and trading well, and after that, the more marginal size IPOs can follow,” said one ECM banker.

Alongside these multi-billion dollar names, German bus operator Flix, Italian luxury shoe brand Golden Goose, Stada, and Spain’s Hotelbeds have all explored 2024 listings, although the latter two are also reportedly reviewing sale options.

Hotelbeds has a score of 55 out of 100, according to Mergermarket’s Likely to Exit (LTE) predictive algorithm.*

“There are a lot of big companies prepping IPOs, we’re talking almost all over USD 3bn market cap and in some cases up to USD 15bn-USD 20bn,” said a second ECM banker. “They’re interesting assets and, because of that, the market feels more constructive.”

Investors still cautious

Large deals in the works for 2024 have prompted investors to get in touch, according to the second banker. “We had one sovereign fund that wasn’t picking up the phone, starting to reverse in on one of our big IPOs at the end of last year to book in meetings,” he noted.

Two investors speaking to ECM Pulse said that high-profile IPOs could provide the magic required to reopen the market, but discounts must still be significant.

ECM Pulse wrote throughout last year that investors were asking for IPOs to come at a discount of 30% to fair value, a number that is still just “too big” for some issuers, according to the first banker.

“It is always difficult to put an exact number on a market IPO discount but, to be honest, I think it’s still closer to 30% than 10%,” said one of the investors, adding there needs to be a compromise.

There are also concerns about whether the rates-fuelled market rally in the last few weeks of 2023 is sustainable. According to CME’s Fedwatch tool, markets are pricing in around a 66% probability of a rate cut in March, which is deemed “punchy” by some investors and bankers alike.

Rate disappointment might equal market pull-back and buyside requests for larger IPO discounts.

In addition to that risk, there will be a huge number of elections across the world in 2024, including in the UK, Taiwan, the US, and the European parliament.

“The question is going to be how we navigate the year. There is a lot of macro data, but central banks are going to be very important,” said the first banker. “We must take it quarter by quarter,” he added.

Ready for take-off

Despite the large names lining up, several practitioners speaking to the Pulse say that one of the first deals that could hit the market in 1Q could be the long-awaited privatisation of Athens International Airport (AIA).

With a reported target valuation of around EUR 1bn, it is not the largest cap listing of the year but could be solid enough for investors.

“Athens airport is not going to be the deal that reopens the IPO market, but it is a unique asset and very interesting given the concession structure,” said the first investor. AIA’s amended concession agreement is expected to be ratified by Greece’s parliament in the next couple of days, a source close to the deal said.

The other investor noted that he expected the Athens airport IPO to be launched “soon” and said that in general government privatisations, like AIA and Hidroelectrica’s [BUC:H2O] IPO in 2023 saw less pushing on price with a focus on the aftermarket.

A second source close confirmed that there is broadly strong appetite among IPO investors, adding “all nuts-and-bolts preparations have taken place” and a final decision is likely to be taken soon by the Hellenic Capital Markets Commission.

The source added that once all the relevant green lights have been given, the IPO is on track to be priced in the first half of February.

Quality isn’t all about size. Sometimes a good story is all you need.

The Hellenic Republic Asset Development Fund (HRADF), the state-owned fund holding 30% of Athens International Airport that is selling part of its stake through the IPO, declined to comment on this story.

*Mergermarket’s LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.