The ‘classics’ will boost IPOs

Everything indicates that IPO activity will recover this year in Spain and the rest of Europe,  after two years of drought interrupted by isolated exceptions (2022 – Porsche, 2023 – Eurogroup, IONOS and Lottomatica).

Obstacles to a recovery began to disappear in the second half of last year, clearing the way for some promising debuts (Hydroeléctrica, ThyssenKrupp, Nucera and Schott Pharma) and, above all, encouraging many others to start preparations. A trend that should crystallize in the coming months, as long as macroeconomic conditions continue to help. For the moment, this continues to be the case with volatility subsiding, inflation on track to be controlled and a potential rate cut by the FED and the ECB in sight.

In this context, four IPOs have already been completed in Europe so far this year, including the privatization of Athens airport, Renk, military binoculars manufacturer Theon, and Kazakhstan’s Air Astana, , which combined retail and institutional interest and once again demonstrated that emerging countries are in fashion among investors.

The success of these operations has confirmed that engagement and investor receptivity have improved. Therefore,  a window of opportunity is expected to take shape between April and June, although investors remain sceptical about certain companies with excessively high valuations. In addition, many funds have been positioned in certain companies for longer than expected, and pressure is building on them to exit within the deadlines usually required by their investors.

Unlike three or four years ago, when technology companies accounted for the majority of IPOs, this rebound should take place with a pipeline replete with more traditional companies. This is likely to be complemented by movements among family businesses undergoing generational change with the goal of achieving an ordered process and maintaining control. All this as long as there are predictable cash-flows and recurring growth prospects.

What seems evident is that conditions for M&A operations in many cases are still not met, especially those that involve high leverage. However, any candidate from private equity will consider dual-track as their base case. What seems likely now is that it is M&A operations that could fall by the wayside, in which case the option would be to go public. Two years ago it was the exact opposite. Let’s hope that the market will backs this up soon.

Javier Pollán.

Head of Equity Capital Markets at Citi for Spain and Portugal