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Sponsors, shareholders urged to tap ‘open’ sell-down market despite equity volatility – ECM Pulse EMEA

Two huge European secondary sell-downs last week have kickstarted the continent’s follow-on market for 2025 and should serve as an indicator to sponsors, as well as other shareholders, that the blocks investors are open for business.

The green light for sell-downs comes in spite of volatile equity markets over the past few weeks. The US Vix volatility index has traded higher since the start of January, driven primarily by rising global bond yields, which has led to a somewhat muted start for large US indices.

European bond yields have also been nerve-inducing for investors, particularly in the UK, and the return of arch-protectionist president Donald Trump to the White House is adding to an already difficult geopolitical time for the continent.

Elections are due in Germany this year and political instability is a major concern in many European counties, including France. The two countries between them accounted for nearly 44% of the eurozone’s GDP in 2023.

Despite these issues, a GBP 2.5bn (EUR 2.95bn) block in UK-listed consumer healthcare company Haleon [LON:HLN] sold by US pharmaceutical conglomerate Pfizer [NYSE:PFE] and a GBP 1.5bn disposal of British American Tobacco [LON:BATS] shares lifted global block volumes higher following a stuporous start to the year for ABBs.

US accelerated bookbuild volumes in the year to date (YTD), for example, are at their lowest point in over a decade. However, the success of the Haleon and BATS trade points to strong investor demand for accelerated transactions.

One ECM investor, from a large global asset manager, noted that sponsors are positioning for several significant block transactions in the first quarter of 2025. “We definitely see sponsor sell-downs picking up after a strong pick-up last year,” the investor said. “Lots of these trades worked well.”

Shares in BATS and Haleon traded up after pricing, indicating strong market liquidity for blocks and a counter-narrative to some of the doom and gloom around financial markets.

“There is definitely a window to do stuff now, investors are keen to employ capital in the right places,” said an ECM banker. “There is political risk and a policy risk though with things like tariffs, not every sector and stock is going to keep trading up.”

US starts slow

Across the Atlantic, US block markets have started slowly. In fact it is the lowest YTD total for blocks since the financial crisis.

The same banker said that US sellers could be holding back until after president-elect Trump’s inauguration given the possibility for a rally given Trump’s initial positive impact on stock prices in his first term.

There might also be a greater chance for market nerves, said a second ECM banker, especially if talk about tariffs gains traction next week.

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As of Monday, 20 January, Martin Luther King Day, the US will have had its third trading hiatus in a month, given an extra day of market closure for former president Jimmy Carter’s funeral.

The country has also been awaiting a shift in power and when market participants go back to work on 21 January they will do so under a new Trump administration, with some hoping for a market rally as the 47th president begins to outline policy.

“There has not been a lot of activity on follow-ons but it is very early; the VIX was up, which is not constructive for cap formation,” said a third ECM banker, based in New York. “We are just two weeks into this new market it is not a trend yet.”

“Follow ons, blocks, overnights, you can plan for them for weeks, but execution is very day specific,” the third banker said. “You may need to go raise capital, but if it is a volatile time you are going to hold off and hope for less volatile day the next day,” he said, adding that there were several issuers lining up deals for the rest of the month.

The second banker noted that US investors are also investing heavily into Europe, as well as in block trades. The issue seems to be sellers holding off rather than US buyers showing reluctance, this banker added.

Sponsors to benefit from familiarity premium

Although there have only been a handful of deals in January, too small a bucket yet to draw definitive trends, a pricing gap between expected blocks, and those that are not on investors’ radar, has emerged.

This was present in the first two mega-blocks of 2025. While the absolute discount on the Haleon and BATS trades did not look that different, pricing at a 2.75% and a 3.85% concession respectively, the size of stakes sold and market liquidity for each told a different tale.

Dealogic’s Price of Liquidity (POL) ratio, which analyses block trade discount vs the size of stake being sold, showed a wider gap between the two deals.

Given Haleon was a 7.73% stake sale, the 2.75% discount represented a PoL ratio -0.36x the size of stake sold. The PoL ratio for BATS was -1.97x the size of stake sold, given it was a sale of 1.96% of the company.

The first two ECM bankers, plus one other, said that the difference was down to the profile of each trade. Sponsors, or other sellers, seeking exits from public assets held over a long period are likely to get favourable pricing over long-term shareholders whose sale needs more explanation.

Pfizer, for example is a well-known seller of Haleon and was released from a lock-up agreement in early December. On the other hand, Reinet Investment’s sale of BATS was not expected by anyone in the market, the same three bankers confirmed. As such, pricing was wider than it would have been had investors been able to foresee it.

A similar dynamic was present in the pricing of two Italian trades last week. Sponsor Apollo [NYSE:APO] was able to dispose of a slice of Lottomatica [BIT:LTMC] at a far tighter ratio than the family owners of Italian software company Reply [BIT:REY] who monetised some of their stake in the company in the same week.

“With sponsor sales, everyone is expecting a sale and are happy to help them exit, even if the sale is initially damaging to the share price as they want the sponsors out and to get more equity for the stock,” said the second banker. “A main shareholder though needs a rational explanation, but people understand that many of these investors do need to rotate capital once it has been explained.”

While a known seller is good for block pricing, it can impact performance between sell-downs, with Haleon trading down between the October block and the launch of January’s trade, with investors likely waiting for the block to pick up more stock. BATS had traded up significantly over the same period.

The top five investment manager increases in Haleon stakes around the time of the last block trade were Wellington Management CompanyCapital Research & ManagementBlackRock Investment ManagementVanguard Group and Qatar Investment Authority, according to Dealogic UK holdings data.

While geopolitical and economic risk is certainly present, the pricing of the two mega-blocks in Europe last week show that broadly, European equity capital markets are open for business, particularly for sponsors with known public holdings they need to exit. Others are being urged to start to make hay.