The Strategist

IPO market is narrowing in Europe

07/13/2016 - 17:09

In the II quarter of 2016, volume of IPO-raised funds on the European stock exchanges fell by 26% compared to the same period last year. According to PwC’s estimates that volume of funds raised in the IPO on the European stock exchanges will not exceed € 25 billion by the end of the year.

Luis Villa del Campo
Luis Villa del Campo
The index is being decreased under influence of global uncertainties, including results of the referendum on Britain's membership of the European Union, experts say.

London Stock Exchange was hit the hardest. Volume of IPO-raised funds there declined by 75% to € 1,2 billion (0.9 billion pounds), which is only 11% of the total amount of funds raised during IPOs on all European stock exchanges.

The volume of funds raised on other European stock exchanges fell by only 6%, and amounted to € 9.7 bln.

"Taking into account results of the referendum on the UK's membership in the EU, PwC experts believe that potential issuers, who are ready for the IPO, would gradually return to the market by the end of 2016 - at the beginning of 2017. However, this requires a higher degree of investors’ confidence and decreased uncertainty in the markets" - experts said. 

According to PwC forecasts that take into account Brexit, by the end of 2016 the volume of IPO-raised funds is unlikely to exceed € 25 billion on the European stock exchanges. This means more than twofold decrease in value terms compared with 2015 (€ 57.4 billion). At the same time, the end of the year is expected to re-energize the IPO market activity.

In the first quarter, total amount of raised funds amounted to € 14.4 bln. This data is showing a twofold decrease in activity as compared with 2014-2015, when record levels were observed. However, in the II quarter, the activity has increased by 3 times compared to the first quarter. This happened even despite results of the referendum on Britain's membership in the EU, which had an impact on amount of IPO deals in all European countries.

Most IPO transactions took place on continental Europe’s stock exchanges, with over 70% of total funds raised on OMX, Euronext, and the stock market in Spain.

"Such a sharp increase in these areas was triggered by a number of privatization deals and separation of business, such as Dong Energy company (2,3 billion euros - the world's largest IPO deal at the end of the II quarter of 2016) in Copenhagen. In addition, there were ASR insurance company (1 billion euros) and Philips Lighting (863 million euros) in Amsterdam", - PwC reports.

Indicators of the London Stock Exchange decreased due to uncertainty associated with the referendum on the UK's membership of the EU. LSE’s share in the total volume of IPO deals fell to 11% on the entire European market - this is the lowest figure since 2009.

After announcement of the voting results, held on June 23 in the UK, several IPO transactions were postponed to a later date due to concerns about uncertainty on the market. Nevertheless, number of transactions, the postponement or cancellation of which was publicly announced in the II quarter, is still comparable to the previous quarters’ level, according to IPO Watch Europe survey.

"Political stability, and greater clarity on outcome of negotiations between the UK and the EU are the most important factors for resumption of IPO market activity after the traditional lull in the summer months. If all these conditions are met, successful completion of transactions in the IPO market in the next few months will set an overall positive atmosphere for the remainder of the year. Although I believe the activity in the IPO market will continue, it is unlikely that amount of IPO transactions in the European market will reach 25 billion euros for the year,"- said Mark Hughes, a partner in the London Capital Markets group advising UK and international groups on debt and equity offerings, M&A and deal readiness.