NEW YORK/LONDON, June 30 (Reuters) – A lackluster IPO market is showing signs of life, while a flurry of deals in the United States and Europe are raising hopes that a recovery may be in sight.
The initial public offerings (IPOs) market has been in the doldrums since early 2022, when the Russian invasion of Ukraine and a surge in inflation dampened risk appetite as investors fretted over incessant rate hikes.
With investors now predicting an end to Federal Reserve rate hikes later this year, optimism is back.
The VIX, an index that measures volatility and known as Wall Street’s “fear gauge,” remained steady for much of the second quarter below 20 — the threshold at which market volatility is considered too hostile for IPOs. It is now at one of its lowest levels since February 2020.
This allowed second-hand chain store Savers Value Village (SVV.N) to raise $401 million in its IPO in New York this week, more than originally planned. Investors continued snapping at shares, with the stock ending the first day of trading up 27%.
“It feels a lot more optimistic than it did in June 2022,” said Aloke Gupte, co-head of international equity capital markets (ECM) at JPMorgan Chase & Co, who underwrited the Savers’ IPO and led the listing of money transfer group CAB Payments (IPO -CABP.L) in London.
“That’s not necessarily reflected in the transaction volumes yet, but the prospects are very different than last year,” said Gupte, whose area of responsibility extends across Europe, Africa and Asia.
Two other companies have also made IPOs in New York — energy infrastructure service provider Kodiak Gas Services (KGS.N) and insurer Fidelis Insurance Holdings (FIHL.N), but at the cost of downsizing offerings.
“Even though we’re getting closer to calmer waters, it’s still not easy,” said Tom Swerling, Barclays’ global head of ECM, who worked on both the Kodiak and Fidelis transactions.
Earlier this month, shares of US restaurant group Cava (CAVA.N) rose to almost double the IPO price in its market debut, providing one of the clearest examples of the return of market hunger.
“(The Cava IPO) demonstrated that the market lacks new offerings from high-growth companies,” said Paul Abrahimzadeh, co-head of ECM for North America at Citigroup, one of the banks leading the Cava offering.
EUROPE-IPOS ON THE WAY
In Europe, three IPOs are on track to close by early July, but two of them have already had to downgrade their valuation expectations.
ThyssenKrupp’s (TKAG.DE) hydrogen division Nucera is targeting a market cap of 2.7 billion euros ($2.9 billion), down from previous expectations of more than 3 billion euros.
British company CAB Payments has taken the rare step of setting a firm price for its share offering, which values it at the lower end of its previously reported range.
However, state-backed Romanian energy producer Hidroelectrica is targeting a valuation of up to €10 billion in its domestic IPO, much closer to the figure selling shareholder Fondul Proprietatea (FP.BX) has on its books.
If successful, the deals could encourage other companies in Europe to follow suit. Market confidence took a hit after natural soda maker WE Soda decided to cancel its IPO in London amid mounting concerns about the health of the market.
Dual listing activity is also contributing to the warming of the market. Hong Kong-listed yacht maker Ferretti began trading in Milan this week after selling €265 million worth of shares. The US-listed cosmetics group Coty (COTY.N) is also considering an IPO in Paris.
Bankers attribute the recent surge in stock market listings in part to the frantic stock sales of listed companies that have taken place in recent months, paving the way for new issuers.
These included multiple multibillion-dollar sales from blue-chip companies like beermaker Heineken (HEIO.AS) and General Electric spinoff GE Healthcare Technologies (GEHC.O).
“This was the year of the jumbo successor, the likes of which we haven’t seen in many years,” said Andrew Briscoe, head of ECM syndicate for Europe, Middle East and Africa (EMEA) at Bank of America.
Advisors expect more companies to resume IPO plans after the summer lull heralding a busy 2024, but investors remain cautious about a full comeback in the IPO pipeline despite market rallies in recent months.
“While people’s assessment of the market as a whole is improving, the picture for individual issuers may not have changed as much as markets are suggesting,” said David DiPietro, head of private investing at T. Rowe Price.
($1 = 0.9169 euros)
Reporting by Echo Wang in New York and Pablo Mayo Cerquiero in London; Edited by Elisa Martinuzzi and Mark Potter
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Pablo Mayo Cerqueiro
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