The US shutdown is over, equity capital markets are robust, and, despite a pull-back, benchmark indices remain close to record highs. The next few weeks provide a clear window to deal, in Europe at least.

Despite – indeed, perhaps because of – mounting fears over AI valuations beginning to seep into markets, the credo from advisors to their private equity and corporate clients is firmly to take this window while they can.

The Nasdaq composite has fallen by 4.4% since its most recent high on 29 October, a blip after the months-long march of tech stocks ever higher; the index has seen its largest single-day losses since April, when US President Donald Trump’s Liberation Day tariffs rocked equities.

The S&P 500 is down 2.3% from its most recent high around the same date. European stocks have had more varied performance, with the Stoxx 600 rising to a new high on Wednesday, 12 November, before losing some of those gains.

Equity capital markets are sanguine, and deal flow has been strong despite two difficult weeks in the headline US stock markets.

The latest mega deal was on Wednesday, 12 November, when UK-listed utility SSE raised GBP 2bn for infrastructure spending through an accelerated bookbuild against a live tape.

The final price of GBP 20.50 a share represented a significant premium to the GBP 19.75 closing price on Tuesday, 11 November.

“The capacity in Europe at the moment is extraordinary,” said an ECM banker. “We have clients looking to sell both secondary and primary equity, asking us whether they can now do USD 3bn- USD 4bn transactions in Europe, and the answer is clearly yes.

“Primary has become a real theme as well and there are corporates actively looking to raise capital, there is a whole raft of those expected to come through.”

Alongside a wave of expected primary raising, as previously flagged by this column, there is also a wave of secondary block trade activity expected to be brought to market before year-end, from both private equity and corporate sellers with non-strategic cross holdings.

Several long-term shareholders exited French car-leasing business Ayvens earlier this month, and at the end of October, Swedish sponsor EQT continued its disposals of Swiss-listed skincare business Galderma.

EQT was active again last week when it sold down its holding in Brussels-listed Azelis overnight on Thursday, 13 November.

Alongside these deals, CVC and Partners Group sold a combined 10% stake in Warsaw-listed Zabka Group on 13 November to raise PLN 2.2bn (USD 590.3m).

There were several non-PE secondary sellers in the market as well, including Canadian pension fund CPPIB, which sold an EUR 814.7m stake in Portuguese-listed Energias de Portugal, on 11 November.

This wave of activity from such a broad breadth of sellers looks set to continue.

“Markets are relatively good and equity capital markets are working, we are therefore hoping for a flurry of activity before the end of the year,” said a second banker.

Source: Dealogic

It pays to play

Despite the nerves in markets, investors are incentivised to keep buying into ECM deals to bank quick alpha, given that their benchmarks are still sitting on strong YTD performance.

“Funds have made money but look at the underlying markets – the Nasdaq is up almost 20% YTD and the STOXX 50 up around 15%, funds need to demonstrate differentiation to their LPs and [show] that they weren’t better off putting money in a tracker,” said the first ECM banker.

For many, ECM remains a key generator of that differentiated performance.

European secondary sell-downs, for example, have produced strong day-one performance for investors.

While gains in secondary blocks don’t come close to the pops of very successful IPOs, regularly buying large chunks of highly liquid stocks at a discount is a strategy that pays.

The average one-day returns between offer price and the end of the first day of trading after a block trade in Europe this year is around 2.9% – and that grows to around 3.4% after a week, according to Dealogic data and calculations by ECM Pulse.

In big liquid names, hedge funds, can often trade 20%-30% of their allocated position every day and be banking “real basis-point alpha” in a week, the banker noted.

Participation in enough of these capital markets deals can prove to be the differentiator as we approach the end of the year, with funds competing against top benchmarks, fuelled by tech exuberance.

It is a truly lucrative – and active – investment strategy at a time when passive tracking has become the norm and the same seven stocks have emerged as the largest holdings of most of the market.

This dynamic has created a high watermark in European ECM, with a historic number of investors engaging in the equity capital markets, close to 100 active funds and billions being put to work in quick-to-market sell-downs and capital raises.

Don’t wait around

Several sources speaking to ECM Pulse in the last few weeks said they had expected more equity sell-downs to take advantage of this environment, particularly from sponsors undertaking well-flagged disposal programmes. But some have been holding fire.

“Everyone looking at these markets that look exciting on YTD highs – but then we have prospective sellers and people nitpicking around share prices being down 150bps, say, from a recent high and forgetting the stock is up 20% YTD,” said the first banker.

“That is a problem with bull markets, people always want a higher price, in a bear market anyone takes whatever window they can.”

Dealogic predictive analytics highlights a strong rationale behind further sell-downs in Polish e-retailer Allegro, Stockholm-listed refrigeration solutions business Beijer Ref, as well as French-listed e-commerce business eDreams.

The data places these stocks among several high-profile, private-equity backed assets where there has been recent sell-down activity; all of these names have also been previously flagged by investors to ECM Pulse, among other names where there is a high expectation of further sell-downs.

US stocks are clearly flashing a warning sign that long-held fears over tech valuations might be starting to be reflected in trading.

In this case, the impetus for sellers to move on equity disposals when they can, rather than waiting for optimal share prices, is even more vital – especially given the robust demand for ECM transactions being shown in Europe.

“We have often seen market wobbles for a few days, and every time it gets bought and markets remain robust,” said the second banker. “Now that can clearly change, and I think it would be remiss of anyone to ignore the strength of the current backdrop.”