As war has raged across the Persian Gulf, European equity capital markets have enjoyed an exceptional month of issuance.

But dealmakers are keen to stress that European ECM has not benefited from some gravitational realignment, where higher volatility means a strong deal window for issuers.

Rather ECM volumes were dominated by a handful of well-flagged transactions that issuers were keen to push when they could, given the intense geopolitical uncertainty hanging over global markets across all asset classes for the foreseeable future.

At USD 22.6bn, European follow-on activity this month (as of 27 March), is by far the best monthly total for such issuance since the start of 2022.

Source: Dealogic

However, when looking under the hood, it becomes clear that this remarkable volume has been driven by a small number of mega deals: a USD 6.27bn sell-down in Galderma, a USD 4.98m primary raise by Zurich Insurance to finance the acquisition of Beazley, a USD 3.25bn secondary sell-down in Naturgy by BlackRock and a USD 2.55bn primary capital raise by Rosebank Industries, again for M&A financing.

These four deals alone contributed USD 17bn to European follow-on volumes in March.

“The huge volumes are due to the fact we had a number of large and very expected situations which were being worked [on] well before the Iran conflict broke out,” said an ECM banker involved in several trades in March. “The Galderma disposal was the most anticipated sell-down in Europe, Naturgy was also expected and has been a beneficiary of the conflict due to higher gas prices.

“Then Zurich and Rosebank were both very well flagged M&A linked raises which were pre-announced in the deal announcements, in those cases it made no sense to hold back, given the overhang on the stock when it was clear they would end advance with an equity raise.”

Therefore, the huge deal volumes in March were more a case of bankers moving ahead on tentpole transactions that were heavily pre-marketed and largely expected by investors.

They could have waited, but with the conflict in Iran raging and little hope ahead of a speedy resolution, there was scant reason to think markets conditions would be any better if issuers delayed.

Sources speaking to ECM Pulse previously about all these deals noted there was enough institutional demand to be confident in a launch. Many investors were also likely pre-positioned for the trades and happy to back large liquid names, despite headline volatility risk.

The only changing dynamic, on occasion, was size. EQT, the seller in Galderma, decided to do a far larger deal than many in the market had expected to remove the overhang on the stock from a known seller, as reported by this column last week.

However, with the large, expected, transactions out of the way. ECM dealmakers must now work on the rationale for unexpected deals.

War winners

Since the start of March, several block trades have pointed to what might work in today’s testy geopolitical waters – notably three sell-downs in UK-listed oil and gas business Harbour Energy for a cumulative total of around USD 653m.

While the total of these three deals is a drop in the ocean compared to the megadeals of earlier this month, they are far more indicative of what might work through the next phase of the conflict.

The largest of the three Harbour blocks was a GBP 218.4m (USD 291m) disposal by German chemicals business BASF, sold after market close on 26 March.

Despite being the third separate trade in Harbour in under three weeks, demand for the deal was so substantial that the deal was upsized by 20m shares from an initial tally of 60m to 80m.

Even at the larger level, the transaction was multiple times covered at the final price – and even above that level, according to a deal note seen by this news service.

“What is more interesting now is what come next,” said the banker. “We are past most of the expected trades and have to start considering what might be possible in this environment.”

“The Harbour trades were fascinating because it is so distinctly linked to this environment.”

While bringing block trades during an ever-escalating geopolitical crisis isn’t particularly easy, investors are still open to allocating capital to the right deals in this market, with some even preferring these transactions to the mega expected blocks earlier in the month.

“It is better for us to engage with deals that are more thoughtfully structured and well thought out,” said an ECM investor. “The performance of those large, expected deals at the beginning of the month has been a little mixed. We get the sense there was a lot of prepositioning and to be honest it has taken a lot of time for the market to digest some of them given what we think was an over allocation to hedge funds.

“But high-quality deals can work well still on the right day.”

The “right day” is the key metric in this market.

Huge daily swings in large stock indices have marked the Gulf conflict.

The general direction of markets has been downwards – the Stoxx 600 is down around 9% from the end of February, the German DAX is down 12% from the end of February and the FTSE 100 has fallen around 7.6%.

While the momentum behind European stocks has clearly reversed since the start of the conflict, US markets have also suffered.

The S&P 500 has fallen by 8.3% since the start of the war and the NASDAQ 100 by 11%.

However, on the few days where there has been some market calm, deals have been done. Although bankers are stressing that issuers will have to pay up a little more than some might like to access market liquidity.

“There are going to be short windows to get deals done,” said a second ECM banker. “Discounts though will have to be wider.”

“For the right asset though, I think people will be willing to have a broader conversation on the absolute price historically given how beaten up some names have been since the start of the war,” he added.

For issuers that have a reason to sell and the spine to put a deal out despite the war, Europe’s equity capital markets will be open…for the right price.