IPOs; Are we heading into a bubble?
July 10, 2014
In the last 12 months we have really seen the European IPO markets once again build traction - in fact the recent surge in the number of IPOs coming to market has now approached record levels.
The second quarter of 2014 was the best Q2 performance by proceeds since the financial crisis. 145 IPOs raised €22.3bn in Europe in Q2, almost twice the amount raised in Q1 2014 and more than four times the proceeds year on year (PwC IPO Watch). To date in 2014, €33.7bn has already been raised, more than in any full year since 2007.
Many years on from the heady days of 2007, should we still be cautious? Is there another IPO bubble popping?
I would say not. Even though the levels of activity are comparable to 2007, the difference in investor attitude and the types of deals we are seeing mean that we are not on the cusp of “a bubble bursting”.
Since the financial crisis, I have noticed that investors and the market generally are more considered. Not all deals have been successful this year and to me it really highlights that a demonstrably strong and engaging growth story, coupled with a realistic valuation are must-haves on a deal.
Back in 2007, activity in Europe was dominated by cross-border deals, representing 25% of the proceeds that year. We were all talking about Russia then, VTB (a Russian bank) was the largest IPO that year at €4.7bn. So far this year, cross-border IPOs just represent over 10% of the overall money raised, including in London which is traditionally the place to go for international issuers in Europe.
Perhaps, in part this is because more than half of our 2014 activity is now driven by private equity, compared to less than 20% in 2007. The profile of private equity deals makes them more likely candidates for a domestic listing.
Sectors also come into play: 2007 was dominated by finance, industrials and tech companies. Today finance still represents a third of proceeds. The number one sector in 2014 has been consumer services, mostly retail companies, which maybe reflects the health of our economy recovering.
What will the summer months bring?
The tide may be turning as the number of pulled IPOs increase, citing conditions in the market, and pressure on pricing. The month of August is a needed quiet period as batteries are recharged and IPO appetites are stimulated again. The rest of Q3 may see a shift in focus as we see more M&A and capital raisings to support such acquisitions, but not to the degree of leverage seen in 2007.
What are your views?
Read our IPO Watch Q2 2014 report here
View our webcast 'Thinking of IPO? Where should you list? London or New York?"
