In a year jam packed with election risk, led by US presidential election in November, it will be more important than ever for issuers in the equity capital markets to seize windows of opportunity whenever they arise.
After the stunning equity market rally at the end of 2023, which saw US and European stocks enter a fresh bull market, EMEA ECM has got off to an extremely slow start in 2024. And last week’s worse than expected inflation data from France and Germany served to further dampen sentiment.
The market is nervously awaiting the reopening of the region’s IPO market after a serious depression that has lasted over two years, with the Greek government’s flotation of Athens International Airport being one of the major deals expected in the first quarter. There is also a significant pipeline building for the second quarter, including names such as Italian luxury trainers company Golden Goose, private equity giant CVC, and Ampere, the electric cars division of Renault.
After such a long slump, the need for a functioning IPO market in Europe is great, particularly for banks that run large ECM teams whose costs no longer make sense in a market where deal flow is so poor, and for corporates and financial sponsors, whose plans to list assets and raise capital have been repeatedly delayed.
For a proper reopening to happen, there will need to be a closing of the gap between what sellers want in terms of valuation and what public market investors are willing to pay, which has been unbridgeable for a long time.
So much time has now passed, and many sellers, particularly financial sponsors, are under growing pressure to return cash to shareholders via disposals, even if that means accepting a lower valuation. This is expected to be a major driver of deal flow in ECM this year.
But issuers need to realise this is a year full of elections that could have major geopolitical consequences — including the US president election, which may end with Donald Trump’s returning to the White House — starting with this week’s general election in Taiwan, and the UK’s general election which must be held before January 28, 2025.
The US election effectively rules out the final quarter as an IPO window for all but the highest quality and most liquid IPOs. For everyone else, that pretty much leaves either the first quarter or before the summer in Europe.
The past two years have shown that waiting for better markets is an increasingly futile task because while markets do improve, they can also deteriorate.
This year, sellers will need to prioritise getting deals done in the first half, when the potential for geopolitical volatility is less severe. This may mean accepting valuations that may not be perfect, but will likely be much better than what was on offer for much of last year when investors had far less visibility on the final trajectory of inflation and interest rates.