With IPOs slow to return to the European market, the region's equity capital markets have relied on a healthy market in secondary blocks for activity.
But activity in this market has been driven by a number of secular trends which could now be starting to fade.
The first challenge comes from private equity funds’ evolving exit strategies.
In the medium to long-term, secondary block deal flow is vulnerable to sponsors opting for M&A deals and shying away from IPOs and subsequent sell-downs.
One of the larger source of blocks has traditionally been private equity investors and founders progressively unloading their stakes in the months and years following an IPO.
Among the highlights this year have been four sales by Apollo of blocks in Italian gambling company Lottomatica, which raised a total of €2.4bn.
But Apollo has now exited Lottomatica, and its behaviour in recent months, as that of other sponsors, could be a source of worry for banks hoping for more reliable sources of secondary blocks.
In March, Apollo opted to exit German lender OLB with a €1.7bn sale to Crédit Mutuel rather than an IPO.
And in June, an IPO in Apollo asset Autodoc was called off at the last minute amid differences on valuation between sellers and investors.
If sponsors are happy to sell blocks in the secondary market, but unhappy to list new assets, bankers will be hurt in the short and medium term.
Beyond PE exits, several other reliable sellers have also recently left ECM, including both companies and governments.
Pfizer’s final block in Haleon closed one of the largest sources of secondary deal flow in recent years, with billions in sales coming from both Pfizer and GSK.
Several governments have now completed privatisations of banks acquired in the wreckage of 2008, another reliable source of blocks. This year the UK exited NatWest, Iceland sold out of Islandsbanki, and Ireland exited AIB.
Block sellers will not disappear altogether. Primary ABBs have surged in recent weeks, with Iberdrola’s €5bn deal the year’s largest.
Large secondary sales are also still expected, including in Switzerland’s Galderma.
But without new reliable sources of secondary offloads emerging through IPOs or M&A, the market may have to settle for lower volumes. And all eyes will be back on the elusive IPO revival.