Europe's struggling IPO market teased a comeback this week with the news that Swedish battery maker Northvolt is aiming to go public in Stockholm at a valuation of up to $20 billion. But a slew of recently canceled listings, along with the dismal performance by London's biggest listing this year, casts doubt on any hope for a rebound in IPOs.
Northvolt's planned deal makes it the most highly valued company to go public in Europe this year. But just a day after that IPO was announced, the market was jolted by news that shares of newly public CAB Payments plunged 72% after it slashed its revenue forecast. While the cross-border fintech company is dealing with its own issues, like African exchange-rate fluctuations that eat into its profit margin, the stock selloff doesn't bode well for the IPO market.
Even before this turbulence, many private companies were getting cold feet about going public.
Earlier this month, Planisware, a French B2B SaaS company, decided to pull its IPO because of market jitters. German toll company DKV Mobility, which is backed by CVC Capital Partners, and military gearbox supplier Renk Group, which has Triton among its investors, also shelved plans to list their shares.
Europe has seen some glimmers of hope for IPOs to stage a comeback, but it may not come soon enough for investors suffering a crisis of liquidity.
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For PE investors backing European companies, PitchBook's Q3 2023 European PE Breakdown does offer some hope. The report notes that public listings account for around 20% of PE exit value, or €48.7 billion (about $51.4 billion), in the first three quarters.
However, this comes with a couple of caveats: One is that only a handful of very large IPOs are moving the needle. Moreover, three of the largest IPOs by European companies—UK chipmaker Arm, German shoe brand Birkenstock and Israel's Oddity Tech—actually went to market in the US. And exit value via public listings was down about 80% in the first nine months of the year compared with the same period a year ago, according to PitchBook's Q3 2023 European Venture Report.
With the public markets looking so dismal at home, it's little wonder that European companies are opting for a Wall Street debut.
But listing in New York hasn't necessarily been a recipe for success. Shares of Arm and Birkenstock have struggled since going public on the NYSE in September and October, respectively. This week Arm was trading roughly 4% below its IPO price, and Birkenstock was down 16%.
In the US, the exit market is only marginally better. While PE-backed companies were among the first to go public in this cycle, there were only four PE-backed IPOs as of the end of September. And despite sparks of an IPO revival, post-float performance has been disappointing in many cases.
While Asia as a whole is finding its IPO market in a similar rut, the region's second largest economy is having something of a moment. This week, Japan's Kokusai Electric—which is backed by KKR—saw its stock jump 32% after going public. With a valuation of $3.6 billion, it is Japan's biggest debut in five years. The same week it was reported that Japan overtook China as a driver for investment banks' revenues from equity fees for the first time in nearly 25 years.
Back in Europe, Northvolt's planned IPO isn't the only high-profile listing in the works. Private equity firm CVC is also poised to go public in London. However, it's unclear whether those two deals suggest a broader trend.
"Both of these listings have been in the pipeline for a number of years and their announcements aren't exactly surprising," said Nicolas Moura, a PitchBook private capital analyst covering Europe and the Middle East. "In the case of CVC, the firm may be riding on good momentum having just raised a record €26 billion LBO fund. Northvolt, on the other hand, may be feeling more pressure to return capital to its shareholders."
General partners are under growing pressure to generate liquidity for their LPs. One PItchBook analyst note from earlier this year notes that with fewer routes to an exit, the industry is facing a $360 billion pileup of overdue investments over the next 12 years. As a result, these fund managers are having to get creative. EQT's recently revealed plans for private stock options give some indication of the lengths that investors may be willing to go.
Regardless, it remains a matter of "when" and not "if" Europe's IPO market will get back into full swing. For some companies, this may be the time to start making preparations.
"Northvolt's reported intentions to publicly list at some point signals that the IPO pipeline in Europe still remains supported, but timing and market stability remain the key issues," said Navina Rajan, a PitchBook senior analyst. "Indeed, companies who have a positive view on a recovery occurring within the next 12 to 18 months will want to start getting their due diligence in process now."
Featured image by Joey Schaffer/PitchBook News
This article originally appeared on PitchBook News