Europe’s IPO market is set to reopen this month with the IPO of sponsor-backed Spanish hotel booking company HBX Group (also known as Hotelbeds) and while investors are keen to get back to work, they have retained a certain level of caution.

The company, backed by Cinven, CPTPP and EQT [STO:EQT], is set be to the first true test of the European IPO market after a revival year in 2024. But despite investors making strong returns in capital markets, they remain wedded to price discipline and selectivity.

“Price discipline is still there,” said an ECM banker working on the deal, “it will be the same as it was in 2024.”

Two ECM investors speaking to ECM Pulse noted that they would push hard on price to replicate the success of IPOs last year.

“One of the things I learnt from last year was not that a company has to be attractively priced compared to peers,” one said. “We have to really think about fair value and if everybody says that is USD 5bn and that is where the deal is priced, then where is the marginal buyer going to be afterwards?

“There must be more wiggle room, because if there isn’t, there won’t be any aftermarket support if there is an early wobble.”

There is also a growing focus on the buyside on valuing companies based off their financials and performance at IPO date and less reliance on forward multiples and projections, the investor and the banker said.

A key reason for this was the IPO of Puig [BME:PUIG] of Spain last year. The perfume company posted disappointing earnings in its first reporting period since IPO, sending its share price crashing given that the listing had been priced at a slim discount to peers based on forward earnings. The shares are now more than 25% below where they were sold at IPO.

The investor noted investors had to be confident in an IPO being valued fairly on current earnings rather on predicted profits in say eighteen months time.

The banker agreed. “You can have a phenomenal pipeline of growth, and investors appreciate it, but they are not going to pay for that now at IPO,” he noted.

Source: Dealogic

A dangerous world

Investors have little structural issue with the IPO market. They know what issuers must do on price for them to have more confidence to buy into a deal, and this has been largely communicated to sellers by advisors from their experiences in 2024.

This therefore should allow new listings to bridge the often-impassable valuation gap that separates good businesses from public markets.

However, the world is still a tumultuous place with febrile geopolitical winds now blowing in all directions.

In Germany, elections this year open the door for populist shocks to dent investor confidence in Europe, France remains nearly un-governable and war still rages in the Ukraine and Middle East.

Adding fuel to the fire is a bellicose president-elect Donald Trump threatening tariffs on European imports into the US and expressing expansionist designs on Greenland, part of North Atlantic Treaty Organization (NATO)-ally Denmark’s territory, as well as the Panama Canal and even Canada.

On top of this the world’s richest man, and most influential populist, Elon Musk, also a close ally of the incoming president and part of the new administration, has taken it upon himself to stoke civil discontent in the UK, which is also facing a lack of investor confidence in the bond market.

“Investors are happy with the market, but the broader news flow is of concern, what is happening with Musk and the UK for example is really extraordinary,” said the banker. “That is the big worry for investors we speak to rather than anything too deal, or market specific.”

Since the start of 2022, geopolitical shocks have been a major driver of equity sentiment and dealmakers are keeping a close eye but, if the last few years have taught equity investors anything, it is black swan events can occur at any time.

“Tariffs are a massive unknown and are likely to be bad for European investing, continuing to push people to the US,” said the investor. “The political environment is also very volatile; we must expect the unexpected and that is not what the market likes.”

Pre-Easter rush

Most sources speaking to ECM Pulse this week were sanguine on the next few weeks for ECM, but did not expect a busy IPO window for at least a couple of months.

The banker on HBX noted that it was one of the few European IPOs expected to be launched in January with most activity then following at the end of 1Q, or beginning of 2Q, to coincide with the pre-Easter window and subsequent post Easter run-up to summer.

Easter Week falls in mid-April this year. “We expect IPO issuance all the way from Easter to June,” the banker said.

Other bankers also noted that their pipeline is still a few weeks away. “Most issuers will wait for full-year results before kicking off,” said a second ECM banker. The second quarter will be busy, he added.

“Investor sentiment is positive about IPOs, but Trump tariffs add some risk. We’ll know more once policies are announced. This will also give people pause for thought.”

With a large pipeline of transactions waiting to be launched in the next few months, there are hopes that politics won’t spoil the party.