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Pull the trigger: Haleon sell-down could lead year of mega blocks

  • EQT, LSEG, Heineken among stocks on investors’ watchlists 
  • Privatisation efforts could trigger blocks in Deutsche Telekom, NatWest

Equity capital markets have had a slow start to the year, but low levels of underlying volatility have sources strategising their block trade game plan.

Large secondary sell-downs would be a welcome addition after a scarce 2022, with names such as UK consumer healthcare behemoth Haleon [LON:HLN] on investors’ radar.

The average secondary block trade in 2022 was worth around USD 195m, according to Dealogic data, down from USD 267m the year prior, weighed by last year’s paucity of mega deals.

This year’s secondaries scene could have started better in Europe, with the Stoxx 600 up over 5.3% year-to-date (YTD), slightly outperforming the main US benchmark S&P 500.

Volatility also remains low. The European VSTOXX volatility index is trading at around 18, down almost 13% year-to-date and down 42.4% from a year ago. Calm reigns in US markets alike, as the CBOE VIX index goes below 20, down 14.5% YTD and 37% from a year ago.

Despite these tranquil waters, block volumes have been negligible in EMEA so far.

Bankers say sellers were unwilling to launch in the first weeks of January precisely because of good markets, in hopes of further stock rises.

Last week, though, saw the first embers of activity and 2023 has now seen five trades worth USD 585m across EMEA.

Investors will likely have to wait for the end of the full year reporting season for those embers to become a roaring fire of issuance, given many corporates are prevented from selling equity because of corporate blackout rules.

Despite the slow start, there is optimism aplenty among advisers that there are some huge trades ahead after a fallow year for big block trades in 2022.

Several sources highlighted a potential sale in consumer healthcare company Haleon by pharma giant and former parent GSK [LON:GSK] as an expected highlight for this year. Glaxo listed Haleon as part of a spin-off last year.

A source close to GSK said that while the company has given no guidance on the timing of when it might start looking to sell its 13% in Haleon - worth around GBP 3.8bn given the stock’s GBP 28.9bn market cap - it did not envisage holding the stake for a long time.

A spokesperson for GSK reiterated public statements that the company intends to monetise its holding in Haleon in a “disciplined and pragmatic manner to further strengthen its balance sheet.”

Several sources said Haleon was already garnering attention among advisors and investors; a trade is now well expected by the market.

Start your engines

Sources speaking to the ECM Pulse also added that alongside new sell-downs, like GSK in Haleon, some shareholders who have previously executed block trades are expected to resume their exit efforts.

“We think there are going to be some exceptionally large blocks this year which we didn’t see in 2022,” said one of the bankers.

Possible sale situations include a sell-down in EQT [STO:EQT] by partners in the firm, blocks in London Stock Exchange Group [LON:LSEG] likely sold by Blackstone [NYSE:BX] and a possible trade in Heineken [AMS:HEIA] by long-time shareholder FEMSA.

There are also several privatisations possible this year, sources added, including a sell-down in Deutsche Telekom [ETR:DTE] by Germany and a continuation of the UK’s efforts to reduce its stake in NatWest [LON:NWG]

The German finance ministry declined to comment on its plans for its Deutsche Telekom stake. EQT, HM Treasury, FEMSA and Blackstone did not respond to requests for comment.

Previous sell-downs in NatWest, Heineken and EQT have been among the largest in EMEA in the last five years, according to Dealogic data, and sources hope trades in the names mentioned will generate billions of deal volume.

A receptive audience

The few block trades priced so far in 2023 have been met with strong investor demand. The largest deal so far, a USD 340m sell-down in Polish-listed retailer Pepco [WSE:PCO], was multiple times oversubscribed with over 100 lines in the book.

Another ECM banker said that while he expected the market to be quiet for a little bit longer, as companies report their numbers, he was confident of trades being launched once reporting season was over.

“We have gone past the worst stage of ECM activity,” he said referring to 2022. “There was always a full pipeline, but it is becoming more actionable.”

An ECM investor was also confident on blocks, suggesting the short list mentioned by others is on the buyside’s radar given their size and liquidity.

For block sellers, it might be the time to pull the trigger.