“Buy the dip, sell the rally,” is often the prevailing narrative for equity investors in turbulent times.

Although this heuristic makes sense for individual investors, when multiple investors follow the same playbook, it can create an unstable environment for long-term strategic planning. Even so, the resulting volatility can provide opportunities for private equity (PE) funds and corporate equity sellers, who can do business in Europe when screens are coloured green instead of red.

Stocks have been in flux since US President Donald Trump announced universal import tariffs on 2 April and kicked off an unpredictable trade conflict with China. There was another bout of volatility on Monday, 21 April, with investors selling positions due to growing tensions between Trump and Federal Reserve chair Jerome Powell.

But there are several potential equity issuers waiting in the wings to monetise positions, as well as some corporates looking to do quick capital raises, some for M&A financing.

These issuers are now being urged by their advisors to be nimble and take short available windows of positive market sentiment to price deals, particularly in Europe which has been spared the worst of US ‘reciprocal tariffs after Trump announced a 90-day pause.

Two days that finished with green index tickers last week prompted two sellers to test the waters. The first was Belgian insurer Ageas, which sold a EUR 550m equity stake on 15 April as part of a capital raise to part fund its acquisition of British insurer esure.

Another positive day for benchmark indices a day later allowed sponsors Cinven, Permira and MidEuropa to sell down a PLN 1.2bn (USD 309.86m) share stake in Polish e-retailer Allegro.

“It feels like deal activity is now going to be driven by daily markets,” said an ECM investor who looked at both deals. “At the beginning of the week everything looked good and then it all shifted and everything was down so this tells me we are likely to get short sporadic windows of issuance.”

The investor added: “But the theme of both sponsors coming to the market to sell-down exposures, and listed corporates using equity to finance M&A, are both encouraging, especially given this backdrop; it shows sellers want to get business done.”

Last week ECM Pulse wrote on the trend of sponsors facing extra pressure to return capital to their limited partners (LPs), many of which are sitting on punishing public market losses. Two days later the Allegro trade re-opened the secondary blocks market.

More such deals are expected to follow in the days and weeks ahead.

One ECM banker confirmed that his firm’s deal pipe, post-Easter, is filled with other sponsors looking to monetise their holdings to increase distributions to their investors as well as a selective pipeline of corporates seeking to issue equity to finance M&A.

The short-term nature of accelerated placements, with books open for just several hours, means that it is an ideal product for sellers to make use of short periods of positive market sentiment. One or two market days with green prices is enough to see a block across the line.

“Accelerated trades can take advantage of micro windows and with only a 90-day tariff hiatus it might actually prompt more sellers to come to market to get business done,” said a second ECM banker.

European demand diminished but still there

Tariff disputes are expected to hit global growth hard in the near term. According to Bank of America’s latest Fund Manager Survey, conducted between 4 April and 10 April, 82% of respondents predicted the global economy will weaken and 42% said a recession is likely. However, fewer respondents predicted the same for Europe and 56% surveyed still expected gains for European equities in the next 12 months.

Since Trump’s ‘Liberation Day’ tariff announcement global equities have all largely fallen, but Europe less so than the US. The S&P 500 was down around 12% in the year to date (YTD) at close on Monday 22 April, and down 9% since April 2; the tech-heavy Nasdaq 100 is down by even more.

By contrast, Europe’s Stoxx 600 was only down by 0.89% YTD, as of 17 April, the last day of trading before the Easter holidays; it had fallen by 5.7% since the tariff announcement.

While not a staggering outperformance, it still shows some European equity advantage and should continue to drive some European ECM volume in large listed stocks, as it has already this year, although likely to a lesser extent.

European follow-on issuance, sales of already listed stock, is still up YTD compared with a big drop in US follow-on issuance, driven primarily by quick-to-market block trades.

Source: Dealogic

Discounts to widen

Despite the return of deal volumes, block discounts are likely to widen, particularly on secondary sell-downs. According to Dealogic proprietary secondary block trade pricing ratios Price of Liquidity (PoL), block discounts have been gapping wider since the 2 April tariff announcement; PoL ratios analyse block trades by providing a between the discount and percentage stake of the company sold in the deal.

“This volatility isn’t going to shut the blocks market, but sellers must be aware that discounts across the board are now widening from where we were in March,” said the first banker.

Wider discounts were the theme in the Allegro block trade last week. The deal was the first sell-down by the company’s private equity backers in a year and showed some widening in the pricing ratios.

The transaction was priced at PLN 29.25 a share, a 7.2% discount to the last close of PLN 31.51.

The discount represented a PoL ratio of -1.9x the 3.78% stake sold, significantly wider than the last time Allegro’s private equity backers sold down the stock in April 2024, when the deal was priced at a PoL ratio of -1.1x.

In fact, the offer price was the same as the price of the April 2024 block, effectively a 0% IRR for the sponsors over a year.

But as ECM Pulse wrote last week, for many private equity funds, the pressure to distribute capital to investors is likely to take some precedence over pricing in a market where PEs need to reward their LPs.

Even in volatile markets, block sellers still need to do business.

by Samuel Kerr