Just $21bn has been raised on European exchanges, less than half the average and a third of the figure in North America.
In the past 15 years, only the peak crisis years were worse. Yet this year, the Stoxx Europe 600 index has climbed 18%, almost to an all time high.
Explanations abound. Perhaps IPO buyers are farther sighted than other shareholders andcan see Europe’s downturn coming. But those same investors still hold untold billions of secondary stock and show up for block trades.
Investors complain that banks rely on hype and sellers push for unrealistic valuations. They would say that, wouldn’t they? The incentive for banks is to do deals — they don’t get paid for failures.
Others say investors are wary because some deals have traded badly. But each company is completely different — fund managers are supposed to do fundamental analysis.
The fundamental problem is that only a small coterie of investors bother to buy IPOs. Many of those have been apathetic. If there isn’t a growth story that really excites them, banks struggle to tempt them with discounts.
They are jaded by a process they see as taking too long and that relies too little on economic reality.
Four weeks of detailed talk on valuation, hyped-up forward-looking multiples and seller expectations creates a process that seems more driven by marketing than economics.
To encourage more investors into IPOs, creating price tension, banks can help themselves by reducing the risk of a transaction before launching it, as they now do on most block trades, ideally with anchor or cornerstone investors.
The endorsement of a strategic anchor has been proven to bring new investors into an IPO — when Mastercard backed the London listing of Network International earlier this year.
But this sort of deal remains a rarity when it should be the norm.