With Europe’s IPO window open again, investors are expressing cautious optimism on deals. But the market lacks the bullish hype driving huge deal flows in the US.

The largest European IPO in the market at present is SMG Swiss Marketplace Group, which at a total offer size of CHF 971m-CHF 1.038bn (USD 1.2bn-USD 1.3bn), will be Europe’s largest new listing since the USD 1.6bn-equivalent listing of Polish retailer Zabka Polska in October 2024.

It is set to be followed by several other IPOs in the next few weeks, including the Stockholm listing of security systems business Verisure, likely to be even larger.

Despite soaring stock markets, Europe’s IPO investor base remains cautious on new listings – in stark contrast to a glut of deals across the Atlantic, which has seen 10 large IPOs priced in the US last week, including the USD 1.4bn listing of Swedish buy-now-pay-later fintech Klarna. There are at least four significant listings stateside targeted to price this week.

The difference in atmosphere on both sides of the Atlantic could not be starker, and while Europe always tends to lag the US in listing volumes, the disparity in the last two quarters has been hugely significant.

In the US, there is a huge demand for new listings, with both retail and institutional money pouring into IPOs. In Europe, meanwhile, the buyside is highly selective, concerned about lofty valuation ranges and low-quality listings.

As noted in this column last week, investor pushback is likely to keep some issuers from launching in the IPO market at all, as seen in the case of German pharmaceutical business Stada, where sellers Bain Capital and Cinven sold to CapVest rather than pursue an IPO.

Source: Dealogic 

Europe’s buyside bears some scars from recent listings.

While there have been the odd success stories in the past few years, particularly the listing of Galderma in Zurich last year and the Amsterdam IPO of CVC, there have been too many cases of failure, with companies trading poorly after IPO and often subsequently missing earnings predictions, then falling even further.

“The biggest worry for us with IPOs is companies underperforming once listed,” said an investor. “There have been too many recent European IPOs that have missed their numbers in the first or second quarter after listing.

“Portfolio managers have lots of great businesses they already own and management they know and trust and will concentrate on those if IPOs keep underperforming.”

This news service today (15 September) revealed some buyside concern that the SMG IPO is coming at a pricey valuation and that, despite early investor buy-in and strong cornerstone support from BlackRock and Pictet Asset Management, the listing valuation left little room for error should the company run into any headwinds.

“The whole market needs SMG to work,” said a second investor. “Even if you’re not involved in the deal, all of the European market is cheering it on because we need new listings to be successful.”

Bearish Europe counters US bullishness

Despite the huge US listing volumes, both investors pointed to issuance across the Atlantic as far from ideal, given huge price fluctuations in listings since the start of the third quarter.

A common factor in recent deals has been for newly listed stocks to rocket by gargantuan levels in early trading before crashing down again to near, or even below IPO price.

Despite still trading above IPO price, the share prices of Klarna, Bullish and Figma have all fallen heavily since their listings, down 6.3%, 25.5% and 56.5% respectively from their first day close.

The second investor noted that the US market was “very unstable,” and the first diagnosed an uptick in retail trading around IPOs that was far from sustainable, and absent from European deals, meaning that it is difficult to replicate the same level of new deal hype.

Both investors noted that underlying stock markets, close to record highs on both sides of the pond, were showing signs of complacency given worrying macroeconomic indicators, particularly the risk of a US recession, especially given extraordinarily weak jobs data.

In the M&A world, large sponsors appear to have already got the message with an increase in private equity aggregate deal values YoY.

There might be an element of this in the US IPO market with issuers making hay while the sun shines. The huge liquidity in US stock markets means investors can gamble more on new listings, with greater confidence that the liquidity will be there to trim positions if the market turns.

The same isn’t true in Europe, with many buysiders burnt by being stuck in underwater IPOs for years after pricing – particularly stocks that were listed as part of the 2021 vintage.

“The mood is surprisingly quite pessimistic in Europe,” said a European banker, pointing to investor concern over macroeconomic risk and political instability, such as the collapse of France’s government earlier in September.

He added that there was still some buyside discomfort around how geopolitical and macroeconomic conditions might evolve in the coming months.

Despite this, there is cautious optimism about a better time ahead for Europe. If deals are priced generously for the buyside and volatility remains low, there is every reason for optimism, even if it doesn’t replicate the hype in the US.

“The market is still disciplined, and there is a focus on aftermarket performance and pricing focus remains critical,” said a second banker. “When conditions align, there’s strong appetite.”