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Frozen pipe -“ Swiss equity capital markets count on Sandoz for deal reawakening

As bankers and investors fly into Zurich for Mergermarket’s M&A Forum next week, they might be asking where did all the IPOs go?

Once one of the most active European ECM hubs, Switzerland has seen zero IPOs year to date, according to Dealogic data.

Local practitioners have been busy digesting other shocking events – the downfall and rescue of Credit Suisse by UBS [SWX:UBSG] – and its wider implications in the financial services industry.

In the absence of IPOs, spin-offs are the ones to watch. Sandoz, the generic pharmaceuticals arm of Switzerland-based Novartis [SWX:NVON, NYSE:NVS], is expected to see its spin finalised in October. The demerged entity, which could be valued at USD 17bn-USD 22bn according to this news service’s Morning Flash, will likely be one of this year’s largest transactions in Europe.

“Equity markets are still relatively quiet,” said an ECM lawyer. It is a mixture of market conditions being perceived as too rocky to nail valuation prospects and caution on the part of the investor base, he said.

The last USD 1bn-plus IPO was Stadler Rail [SWX:SRAIL] back in 2019. While the pandemic affected markets, IPOs reached a decent deal volume of around EUR 2.5bn in 2021, in line with the healthier years of 2019 and 2018, when issuance topped USD 3bn, yet far from the records of 2017’s USD 4.5bn. In contrast, 2022 saw a meagre USD 199m in deal volume.

Performance has not been encouraging either. The single listings of 2020 and 2022 and all the IPOs from 2021 are trading in negative territory. For instance, two USD 500m+ IPOs in 2021, PolyPeptide [SWX:PPGN] and Montana Aerospace [SWX:AERO], are down 67% and 47% from their IPO price, respectively.

Several companies are still reeling from the effects of COVID on their businesses, noted an ECM banker, preventing the desirable two-year positive financial track record pre-listing. Economic headwinds keep tainting balance sheets of some of these candidates, he added.

What’s to come

In the medium term, there are promising and large-scale IPO candidates that could inject new life in the exchange in late 2024 or even 2025. ABB’s [SWX:ABBN] e-mobility unit is still slated to go public, though the industrial owner recently racked up two rounds of private funding to finance growth until market conditions improve. Swiss skincare giant Galderma, the potential saving grace of the battered market, is not expected to launch before the first quarter of 2024.

Looking further away, Swissquote [SWX:SQN]’s CEO recently said management could float its Yuh banking app.

Follow-ons and equity-linked could provide much needed relief in the immediate term, with a slate of convertible bonds being prepared by local companies that are repeat issuers and struggling with profit warnings, according to one of the advisers.

The exchange has long been benefitting from inbound follow-on activity such as the 15 Chinese companies’ secondary listings that landed between 2022 and 2023, according to Dealogic.

If these deals come to market fast and the Sandoz deal revives spirits, issuers around Europe may return to view Switzerland as a ground for investment.

A detour for the better could come more swiftly than the year-to-date tally suggests.