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Plan (AB)B: IPO candidates to tap private pockets after ABB success

As live IPO candidates IONOS and Italy’s EuroGroup Laminations take serious cuts to their valuation hopes to get a deal done, some issuers are opting to explore private funding options as an alternative to a cut-price flotation.

Last week, ABB [SWX:ABB] completed a second pre-IPO funding round for its e-mobility division, one of last year’s oft-delayed listing candidates, providing the company with equity funding without having to take a valuation penalty from ECM investors.

While the market has calmed down and there is talk of issuers moving ahead with IPO plans to take advantage of more benign equity conditions, there is little doubt that valuations remain challenged as shown already by IONOS and EuroGroup. Any issuer that wants to do an IPO must be prepared to review their aspired price tags, as ECM Pulse reported last week.

In fact, as market conditions worsened in 2022, more issuers turned to late-stage funding rounds over a public listing. According to Dealogic data, there was around EUR 30.5bn of late stage, Series-D or greater, funding rounds in Europe in 2022 vs around EUR 16.5bn IPOs, the first time in many years that companies preferred late round funding to a European listing.

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ABB’s new round brought in CHF 325m in proceeds in exchange for 12% of E-mobility, at a CHF 2.7bn equity valuation, higher than the first round in 2022 when it raised CHF 200m for an 8% stake, at a CHF 2.5bn valuation; the 2022 number was also consequently what ABB had been reported to be seeking for the division at IPO.

Several industry sources speaking to ECM Pulse this week said they did not believe ABB could have gotten even close to CHF 2.7bn for ABB E-mobility in an IPO market that is still recovering from the battering of 2022.

Advisors Morgan Stanley and UBS also managed to attract a cohort of tier one investors into the capital register including General Atlantic’s BeyondNetZero, GIC, Just Climate and Porsche SE [ETR:PAH3]. A source close to the deal said that it had taken serious time and effort to attract that calibre of investors.

“Could you get GA to take part in this at IPO? I’m not sure,” an ECM banker following the situation said, impressed with the high-profile roster of investors.

“This showed there is another option to an IPO,” said the source. “A year like the last one gave people food for thought; you have to think a little bit more laterally.”

The company is still keen to do an IPO, a second source close said, but on a call with analysts and reporters last week ABB CEO Bjorn Rosengren said he now had the capital to grow the business and would not rush into a listing.

Big enough, hot enough

Not all IPO candidates could replicate the success of ABB E-mobility, which is deemed a high enough quality business in a hot enough sector to command the interest of large private investors.

But some IPO hopefuls could follow suit. Other companies that could take advantage of a pre-IPO funding round include Nucera, Thyssenkrupp’s [ETR:] hydrogen and water electrolysis business, said two bankers.

At its AGM last week, the German conglomerate said the division was ready for the capital markets. But the hefty valuation concessions by IONOS and EuroGroup could cause it to reassess.

All sources speaking to the Pulse agreed Nucera would be an ideal candidate for a private pre-IPO round, given the quality of the business, the strong parent and lack of listed hydrogen investment opportunities.

A source close to Plenitude, the renewable energy business of ENI [BIT:ENI], said the Italian oil and gas giant is still in discussions over a private round for the business, as reported previously by this news service.

Italian press reported that ENI could secure investment from Hitec Vision, the private equity firm invested in Norwegian oil and gas company Var Energi [OSL:VAR] alongside ENI before its IPO last year.

“It’s the best solution, as it does not close completely the opportunity of an IPO, while securing the funding needed for growth,” said the source. “You want as much safety as possible in this market environment.”

Pre-IPO funding isn’t the solution for everyone, but for issuers caught in a holding pattern of valuation pushback and repeated postponements, a private round might break the cycle.

Thyssenkrupp declined to comment beyond previous public statements, ENI did not respond to requests for comment by the time of publication.