Equity capital markets are back with a bang in EMEA with several large block trades now priced and the first major IPO of the autumn window launched. Many sponsors are expected to use whatever window they can to sell equity stakes in their listed holdings before the end of the year but must beware of rising index volatility.

Last Thursday (September 12) the IPO of German academic publisher Springer Nature, partially backed by BC Partners, kicked off in the hope of a Frankfurt listing.

This follows several large sponsor-backed block trades this month, notably a CHF 1.1bn (EUR 1.17bn) sell-down in Galderma [SWX:GALD] by Swedish private equity firm EQT [STO:EQT] on 4 September and Advent Capital selling down its position in Polish locker company InPost [AMS:INPST] in a EUR 340m block on 11 September.

Several ECM bankers noted that they expect more sponsor sellers to test the markets with more sell-downs before the end of the year.

“More sponsor sell-downs are a theme we have been seeing for a while and we expect it to continue,” said one. “It is something the buyside wants to see. The investors we speak to are very positive on secondary sell-downs, are becoming more active and are all more aligned with these processes.”

Source: Dealogic

Sponsor-related follow-on volumes across EMEA stand at around USD 11.9bn year to date, an increase of 13% from USD 10.5bn at this point in 2023.

More impressively is that this year’s volume is split on 48 transactions versus just 19 in 2023, with most of last year’s volume coming from sales in London Stock Exchange Group [LON:LSEG] by a consortium of investors, including Blackstone [NYSE:BX], CPP Investments and GIC, which reduced the stake it ended up holding as a result of the exchange’s acquisition of Refinitiv.  

While there have been two large blocks in LSEG in 2024, the rest of the activity has been more typical sponsor sell-down activity with private equity companies returning to the equity capital markets to reduce their listed stakes – through block trades – on their way to a full exit.

This trend has been fuelled by pressure from LPs, encouraging funds to start offload listed assets even if they are trading below the price at which the sponsor listed them at IPO, sources say.

While this visibly may look like the sponsor is taking a hit on the investment, in many cases the GPs have far exceeded the purchase price paid for the asset pre-listing. Also, the vintage of the fund it sits in tends to be well into the carry, meaning any sale, even at a lower price, is still pure profit.

If equity markets continue to rise, there is an expectation from several ECM bankers that sponsors will continue to utilise good windows to dispose of these listed assets rather than wait for share prices to return to IPO levels or previous highs.

Markets open but volatility a concern

The re-opening of the accelerated market for sponsors, and other sellers is notable, given a recent uptick in market volatility.

“Several deals have priced in the last few weeks, fortunately. Despite the US market dropping on some of those days, transactions were able to complete,” said a second banker. “We didn’t have to pull wall crosses and we found lots of investor appetite to participate, but if volatility does increase, I think it is just going to be the case that sellers have to perhaps start to pick their windows a little.”

Between 30 August and the close of US trading on Friday 6 September, the S&P 500 fell by more than 4.3%. It then bounced back 4% the following week, showing a higher degree of equity turbulence than investors have been used to this year.

There are some significant macroeconomic and geopolitical hurdles ahead. Among them, the US Federal Reserve is expected to cut interest rates for the first time since 2020 on Wednesday (18 September).

Rates traders have swung widely between predicting a 25bp cut and one of 50bp, but as of today, a slight majority – 59% – predict that the US central bank will begin the rate easing cycle with a 50bp cut, according to CME FedWatch.

This is a dramatic turnaround, given that a little over a week ago around 70% of rate traders predicted a 25bp cut at this week’s meeting.

The swings in expectations about the size of the Fed cut open the possibility for market volatility should investors buy or sell around the decision, or on the back of Fed Chairman Jerome Powell’s comments after the meeting.

There is also the US presidential election in November. Already highly tumultuous, it has caused much of the IPO pipeline in Europe and the US to be delayed until 2025.

Investor demand for paper is high and many sponsors have clearly come to the view that the time to start selling down listed assets again is now – even if they are trading below IPO price.

But sponsors will need to be nimble and make use of deal windows where they can.