The year the Northern Lights outshone the rest of Europe
February 02, 2017
- Geopolitical shocks have impacted the European IPO market in 2016
- Uncertainty will be the new norm and markets will have to adjust
- Cautious confidence for 2017: clarity over UK’s exit from EU, recovering oil price, potential European spin offs and privatisations, an encouraging pipeline of cross-border deals and more US tech IPOs
We have closed the book on 2016, a year which will go down in history as the year of political upsets, the year Iceland and Wales became stars of European football, and a year to forget for the European IPO market.
However, the performance of the European IPO market cannot be blamed solely on geopolitical uncertainty. If we think back to the start of the year, unfavourable and volatile market conditions were impeding the market as falling oil and commodity prices coupled with concerns over a slowdown in global growth prospects unnerved investor sentiment. In short, 2016 started badly and didn’t really get any better, until the end of the year.
However, in times of darkness, the Northern Lights were shining brightly from the Nasdaq Nordic exchanges, as they recorded a record year propped up by the mega IPOs of Dong Energy A/S and Nets. Conversely, London recorded its lowest IPO proceeds and volumes since 2009.
What's the outlook for 2017? It's hard to tell whether spring will finally thaw the icy landscape that has lingered over Europe for much of 2016. Political uncertainty looks set to continue; elections in Germany, France and the Netherlands; the shaping of the agreements to negotiate the UK's exit from the European Union; and the difficulties faced by some of the major European banks, have the potential to batter the stability of the indices and deter potential IPO candidates. By this point you could be forgiven for thinking that the European IPO markets will remain barren throughout 2017.
I remain cautiously confident that the challenges that 2017 will confront us with will be overcome. A colleague of mine recently noted that the markets took three days to stabilise following the UK referendum, three hours following the US election result and three minutes following the Italian referendum. Indeed it appears as though uncertainty will be the new norm, and with practice, the markets are learning how to adjust.
In the UK, as we get more information about what form our exit from the EU will take, there will no doubt be an impact on market conditions, however, record highs on the FTSE 100 index, the commencement of the recovery in oil prices and encouraging news regarding UK growth prospects may help convince IPO candidates to take the plunge.
In Continental Europe, there are a number of entities reportedly looking to shore up their balance sheets by listing portions of their operations – which could give rise to Europe's mega IPOs of 2017. It will also be interesting to see if the Italian government advances on its privatisation drive, in view of its planned bailout of Monte dei Paschi di Siena.
The global IPO outlook is more buoyant. To the West, the US is predicted to bask in the year of tech IPOs. Snap's well documented IPO is probably the most anticipated since Facebook in 2012, and could be joined by a host of other unicorns looking to gallop into the equity markets. To the East, a host of Chinese tech companies are also reportedly gearing up for a 2017 IPO and there is an encouraging pipeline of cross-border deals set to increase activity next year.
In summary, 2017 will be challenging and exciting in equal measure!