Verisure’s successful Stockholm IPO has provided a solid foundation for Europe’s IPO revival, throwing the window wide open. But sellers are frustrating buysiders by shifting to a more aggressive price stance – and could put this all at risk.

Backed by Hellman & Friedman (H&F), security solutions player Verisure is trading up around 24% from its IPO price, banking investors around EUR 864m of aftermarket returns given the EUR 3.6bn deal size.

Alongside Nordic Capital and Sampo’s listing of Swedish challenger lender NOBA Bank, which has also enjoyed a sizable pop, Verisure is a poster child for objective pricing and valuation maximisation beyond bookbuild.

Contrast this with the IPOs of SMG and Ottobock – both of which have been far more muted in trading, having listed with more punchy pricing.

SMG priced its IPO at near parity to listed peers Rightmove and Scout24, both seen as natural comparables given their property focus, also the issuer’s main business line. Despite landing at a generous discount to Baltic Classifieds Group, the sellside does not seem to have convinced investors this was the closest benchmark.

For its part, Ottobock’s IPO syndicate had a crack at pitching a host of medical technology companies as peers due to its robotics division – but the listing valuation came at a far narrower discount to Embla Medical, its main European-listed competitor.

Investors mulling participation in Europe’s upcoming IPOs are consequently increasingly concerned sellers – particularly sponsors – are focusing marketing efforts on more distant, high-multiple peers and providing little discount to businesses widely viewed as the more natural listed comparables.

“Both Ottobock and SMG, we felt came broadly in line with their main benchmark peers, which is reflected in the trading,” an ECM investor told ECM Pulse. Sellers do appear to be over-reaching with some less obvious comps in an effort to juice listing valuations, he added.

Buysiders report a similar dynamic emerging in the London IPO of UK challenger bank Shawbrook, ahead of the scheduled closing of books on 29 October.

As reported by this news service, Shawbrook’s IPO discount ranges from paltry to non-existent when compared with Paragon, which many in the market see as its most obvious London-listed peer.

Shawbrook’s return profile has led some to compare it to Austrian lender BAWAG, which trades at a lofty price-to-book ratio of 2.56x. Compared with this continental comp, the price discount looks far more attractive.

The IPO’s success – and Shawbrook’s aftermarket performance – hangs on how much investors buy that story and that comparison, or pull away from the deal due to the lack of concession to Paragon.

It has to be conceded that peer comparisons are more of an art than a science, and some on the sell-side are quick to defend a broader range of comps.

“There is never a perfect peer,” said one ECM banker. IPO candidates always “have different business lines and different financials, so it is very hard to just benchmark to one.

“Investors often complain about this but it’s rarely that simple to benchmark to one clear peer.”

Basket case

While some equity stories require a variety of different listed peers to capture all aspects of their business, there is a growing feeling that banks and ECM advisors are using this as a smokescreen, drawing on a wider basket of peers to help sellers get a better price, rather than to reflect true business fundamentals.

“The main issue here for me with the IPO market is that in many cases the offer price, in our opinion, is being structured to satisfy the sellers return numbers versus an agreed market price,” said an investor.

In these cases, sellers and banks are not attempting to solve the puzzle around the best market price but are structuring transactions that can get away at a price designed primarily to satisfy sponsors and other sellers’ returns aspirations, this investor argued.

“The maths is troubling for me,” the investor added. “Verisure didn’t come at a screaming discount to its peer group. But the IPO was a proper price discovery process and investors could see where there was relative value versus those other businesses, which is where the sellers bought the deal.”

A second ECM banker also bemoaned a growing tendency in the market towards upfront seller monetisation over aftermarket performance, a shift away from what had started to become an orthodoxy in Europe, even as momentum grew into this IPO window.

“In the fallow years of 2023 and through 2024 there was a change in orthodoxy where investor price discovery and big discounts became a major part of deal discussions; unfortunately in better times you can start to lose that and sponsors and sellers get greedy,” this banker said.

“It is very different from sponsor to sponsor; some really care about investor performance and make it a big part of their thinking. Others don’t factor it in at all – and unfortunately, others still are starting to factor it in less.”

This column has mentioned before that H&F and Swedish sponsor EQT are examples of private equity houses that seem to have an aligned strategy on ECM deals that is built around the firm retaining a track record as a good seller for the buyside.

US-sponsor Apollo also has built something of a similar reputation in Europe through its staged exit from Italian-listed Lottomatica.

Alongside the long-term benefits of being seen to leave a little value on the table, any newly listed stock needs a boost in early trading to protect it against quarterly results fluctuations and macro shocks.

If freshly listed stock struggles to move beyond the IPO price due to sellers’ prioritisation of a near-term sugar rush, it becomes far more exposed to unpredictability. The residual held by an IPO seller can be hit especially hard, as was seen in the class of 2021.

Sellers can suddenly find themselves deeply underwater on a listed position, intensified by the lower liquidity profile of newly listed stocks.

A little pragmatism at the beginning of a process often yields far greater rewards down the line.