European equities sellers throw caution out of the window - thank goodness
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European equities sellers throw caution out of the window - thank goodness

A slow start to the year left bankers and investors frustrated, but sellers are finally showing signs of life

Boy climbing out of window

“A window,” cried equity capital markets issuers for much of last year, “someone* open a window!”

Last year's ECM pipeline was a stuffy place, full of postponed initial public offerings and private equity firms sitting on shares of companies that went public in 2021 and tanked in the volatile markets that followed.

Like passengers on a train with broken air conditioning, market participants kept hoping for the next window, the pre-summer window, the post-earnings window, but they never managed to open them wide enough to let more than a small handful of deals through. Stock price volatility, fears of recession and uncertainty around interest rates were pushing back from the other side.

But this year an unexpected stock market rally and the improving economic outlook blew a gust of fresh air into European equity capital markets. Bankers expected a wave of block trades and convertibles. Investors were itching to deploy some cash. And the sellers? They held their breath.

A few deals happened, usually when buyers made reverse enquiries. Furniture group Steinhoff cut its stake in retailer Pepco. EQT and a Canadian pensions fund sold a bit of Azelis, the Belgian chemicals company.

In both cases, sources told GlobalCapital that investor demand would have justified larger deal sizes, but the selling shareholders hesitated, apparently waiting for share prices to rise even further than they already have. After all the futile window waiting of 2022, letting this one pass seems like a risky approach, several bankers agreed.

Things changed this week. A sale of Swedish property portal Hemnet started out just like the deals in Pepco and Azelis: reverse interest encouraged the deal, but selling shareholder General Atlantic kept the offering small – initially.

When it became clear that investors had shown sufficient interest, the US asset manager followed the advice of its syndicate, doubled the deal size and exited its entire 16.6% stake.

There were other encouraging signs this week, too: an €800m accelerated bookbuild in SEB, as well as a €1bn convertible issued by Rheinmetall.

Both European IPOs in bookbuild, Ionos and EuroGroup, were covered within a day. Indexes are moving ever closer to and – like the FTSE 100 – beyond their levels of a year ago.

The few ECM deals that were priced this January have performed well in the aftermarket. Companies will begin reporting full year results soon, which tends to trigger more blocks. A substantial pipeline of deals has formed, including several trades in state-owned banks and follow-on deals such as the widely expected sellown of shares in healthcare firm Haleon by GSK and Pfizer.

Once the block market is back, IPOs could follow as a number of potential issuers are preparing deals, such as the Italian Lottomatica and ABB’s e-mobility business.

Sellers finally seem to be getting comfortable around an open market window. The next step would be to open the door for a steady stream of healthy activity in the new year.

*preferably someone else, that is

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