Investors are happy to see the return of deals, with three sponsor-backed businesses reigniting the EMEA IPO market, but sources say a strong local contingent is needed to see new listings over the line.

The three IPOs in question perhaps represent the final flourish of deal activity before the US presidential election, and maybe the end of the year, if volatility increases around the vote.

The return of sponsor exits via the IPO market has been a steady theme in 2024, as private equity companies look to cycle investment capital and make new purchases.

On Monday, 30 September 2024, bookrunners set an offer price of EUR 22.8 a share on the IPO of German academic publisher Springer Nature, around the middle of the initial range, with books “multiple times oversubscribed at that level” according to a syndicate note seen by ECM Pulse. A source close to the deal noted that banks had significant demand for the deal above the offer price.

The IPO will consist of a EUR 200m primary raise and then a share sale by sponsor BC Partners. Books close on 1 October, with the stock to start trading on 4 October.

While Springer opened the IPO window, it was quickly joined by CVC [AMS:CVC] backed Zabka Group, followed by a surprise return of Spanish frozen baked goods company Europastry, backed by Spanish sponsor MCH.

Alongside the sponsor deals, UK fitness supplements firm, Applied Nutrition announced on 30 September that it would be seeking to list on the London Stock Exchange.

All these have different equity stories than the behemoths like CVC and Galderma [SWX:GALD] which priced European listings earlier this year, but they all are pitching equity stories that centre around strong local businesses and any return of deals at all is positive after a spate of pre-summer cancellations.

“The IPO market feels very binary, often shifting between a perception of being open or closed,” said an ECM banker. “We think the general market backdrop is very constructive as investors have lots of cash to deploy so we certainly think the market is open.”

The only thing which is odd is the relatively few IPO issuers that have taken advantage of this window.”

Despite stock indices being at record highs, there is still a degree of investor scepticism among buysiders over the health of the overall IPO market.

To price strong deals, issuers need to be offering unique value or an asset cheap enough relative to its listed peers to make equity investors take it on, they say.

But sometimes the latter still is not enough, as was the case with the IPO of Douglas [ETR:DOU] which is now trading 20% below offer price despite a deal which most investors thought was an appealing price.

Home advantage

An investor speaking to ECM Pulse noted that there was a market buzz around Zapka Polska being driven by an expectation of large local pension participation in the IPO, as this news service reported last week.

He added that he thought strong fundamentals, and a local investor book would also likely be the best strategy for the Springer Nature IPO.

Local investors are often deemed to be more fundamentals focussed than deal-playing ECM hedge funds, who operate a shorter-term strategy on IPOs. These local investors will typically have a far longer holding period, in line with global long-only investors, and a bedrock of these accounts can give a deal a platform over which to build.

A book full of longer-term investors is likely less liquid, given they tend to sit on IPO stock, but this can also theoretically provide a natural floor should an IPO trade under the offer price, with true believers stepping in when the players lose faith.

“Some of these IPOs don’t make that much sense for short-term funds, unlike some of the deals earlier this year which we thought would trade up very quickly,” the investor said. “Cases like Springer are more attractive to real money as there probably won’t be much alpha for the hedge funds.”

The source close to the Springer IPO agreed with the investor’s premise and said the deal was likely more attractive to investors more interested in longer term gains rather than a hedge fund seeking quick returns.

“It will be more of a fundamental book, it’s a long-term holdings sort of investment and we have had a lot of interest from the big global mutual funds and lots of German, as well wider European, support,” the deal source said. “There will also be quite a few sector specialists in there.”

A second deal source noted that while Springer has had demand from investors across the board, most of the book will likely go to long-onlies with investors responding well to the discount to its main peers, as outlined by this news service last week.