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Slim pickings: Will IPO candidates pursue a happy medium amid the ongoing freeze?

Hopes of Europe’s IPO markets thawing are still high, but so are anxieties. There’s no shortage of concerns playing on the minds of investors. A pipeline of share offerings lies in waiting and bankers are thinking of how best to drum up interest while sentiment remains bearish.

There are expectations this month that larger IPO candidates will begin making “intention to float” announcements, but these will be smaller and cheaper than people expect. While pricing a listing attractively can help to win over investors, issuers don’t want to give up too much equity at bargain rates. The downsized approach is a happy medium.

Main takeaway

There is precedent for this. Early in 2021, the IPO market was booming on the back of a rampant equities bull run with investors fighting to get into deals. By spring, the mood had soured after several deals floundered in trading, including the bumper listing of Deliveroo in London.

Many investors shied away from the IPO market and issuers had to lower their expectations, pricing smaller deals in exchange.

The UK listing of Darktrace, for example, was restructured to bring down the size and cost of the transaction. The deal consisted of a £189 million sale of just under 11% of the company—far smaller than the 20% that owners Summit Partners and KKR had reportedly planned to sell. Pricing attractively also gives room for the stock to run before issuers make a follow-on sale at a higher valuation set by the market.

Performance art 

Darktrace was one of the best performing IPOs of 2021 and is still more than 50% above the IPO price despite the wider sell-off that hammered many other 2021 listings.

Dutch payments firm Adyen, perhaps Europe’s best IPO of recent years, was also a small float at 13.4%. The stock soared almost 90% six months after its 2018 IPO and is now up almost 600% from the offering price.

Spanish energy company Acciona also had to take a valuation haircut on its sale of renewable unit Acciona Energia, selling just over 17% of the subsidiary to reduce the impact of the price reduction. It has performed less spectacularly but is nevertheless up nearly 18% since listing.

There are a handful of European candidates that could kick off IPO processes in the next few weeks, including Swiss skincare company Galderma—Europe’s bellwether IPO for 2022—as well as the e-mobility unit of ABB and possibly Coca-Cola Beverages Africa.

The markets are waiting with bated breath. Don’t be surprised if these turn out to be slimmed down versions at an offer price that is too good to refuse.

Peak exuberance equals larger floats

Challenged IPO market equals smaller floats