• Faith in management matters in changeable times
• Investors bank returns rather than take late-year risk

The US and European IPO markets have reopened after a subdued start to September, with smart ring maker Oura and African fintech business Airtel Money leading the charge on both sides of the Atlantic.

However, several market participants speaking to ECM Pulse are pointing to tempestuous market forces acting as a headwind against IPOs; new listings are now far from smooth sailing.

Although headline equity indices are registering healthy YTD gains, boding well for valuing market entrants, rising sovereign debt yields are complicating the picture.

Rising yields tend to mean higher weighted average cost of capital (WACC), which then directly lowers equity valuations by reducing the present value of a company’s projected future cash flows. This means investors need to have complete faith in a company’s future earnings projections at IPO to offset this dynamic – and might still demand higher discounts.

Source: Dealogic

It also increases the attractiveness of “risk free” investment in sovereign debt. If investors can buy 10-year US treasuries at a 5% yield, why take the risk on an untested stock that may not hit its numbers when it posts its first earnings.

As ECM Pulse has reported before, improving corporate earnings remain one of the key structural drivers behind this equity bull market, if that picture weakens, the downside risks increase.

Management under the microscope

In this environment, strong management teams matter more than ever and the scrutiny on management during IPO roadshows will be higher.

IPO candidates, given that they are private companies, have no track record of equity performance through tough times. So investors must have faith that executives will be able to navigate stormier waters.

A banker close to the IPO of Airtel Money, for example, noted that the company’s experienced management was a selling point for investors in early marketing, alongside the ownership of Bharti Airtel and a high-quality cornerstone.

International Finance Corporation (IFC), part of the World Bank Group, is investing up to GBP 67.2m as a cornerstone investor.

It is a highly cash generative, debt-free business, but in an uncertain world executive personalities and governance perhaps matter even more to investors than earnings track records.

Oura, on the other hand, presents a high growth tech-play with a rich purchase price and a growing SaaS business model through its subscription business.

Market participants close to Oura have noted the quality of the business: it has real cash flow and far better unit economics than previous subscription hardware listings, like Peloton for example. But, like all IPO candidates, it is untested as a listed equity in times of turbulence.

Oura must show that it can rely on repeat hardware buying as people cycle into newer smart rings, or indeed that its transition to a SaaS-style subscription business can replace its hardware sales as a source of consistent revenue, unlike Peloton for example.

Management must prove to investors it can make that business transition while also fending off serious competitive pressures.

“Oura will be interesting as it’s a real company, but it has overtones of Peloton and also the fear that Apple could just crush it if it wanted to do so,” said a second ECM banker.

A European ECM investor bemoaned a series of recent European IPOs that had failed to deliver on lofty pre-listing expectations once they had gone public. Two of the continent’s largest recent listings, CSG Group and Verisure, remain well below their IPO prices.

These are not isolated cases, unfortunately, but just the latest in a series of European stocks that have disappointed investors in early earnings.

The same investor noted that a healthy discount to listed peers is all well and good, but if a company does not hit its financial targets, then all the fundamental valuation work around that discount is incorrect.

The same is true in the US. If a company sets unrealistic growth expectations and doesn’t meet them, equity markets can be unforgiving.

Therefore, in this environment, IPO candidates with credible and experienced management teams might just be able to convince investors that parting with their cash is less a leap of faith but rather an educated investment in a company’s executive leaders.

Pipe thins, volatility rises

Several dealmakers on both sides of the Atlantic have expressed concern about a thinner IPO pipe in the remaining months of 2026 than had been planned for just a few weeks ago.

In Europe, Ignis Energy and Utmost have already pushed back IPO timetables, although both for idiosyncratic reasons rather than just market volatility.

In the US, there is talk that beauty products business Wella may have to readjust its valuation expectations to offset market volatility or delay.

Several bankers in the US noted that other IPO candidates were reviewing their plans due to rising market volatility.

“I would say we just have not had a ton of dialogue on other US IPOs, it’s been slower in the past week,” said a third ECM banker. “When the US 10-year goes from 490bps to 520bps in a week, that sort of gives people some pause as to what’s going on and so that’s created some concern.

“Again, it’s all delays, not necessarily long postponements at the moment, but investors get distracted by all that, so they don’t want to be looking at new stories.”

For many investors sitting on healthy YTD returns, the risks of buying into a new IPO and losing money are high, therefore some may decide to adopt a far more cautious approach unless an exceptional asset hits the tape.

The first banker noted that much of the buyside have “made a fortune this year”.

With the US midterms around the corner and volatility rising, it is easy for them to forget about IPOs this late in the year and protect those returns at a time when mistakes are far costlier.