Strong start for Europe’s IPO market lifts recovery hopes

Europe’s market for initial public offerings has made its strongest start to a year since the pandemic, as new highs for stocks and the prospect of interest rate cuts raise hopes for a sustained recovery in listings.

Companies have raised $3.2bn in European IPOs since January, more than double the amount over the same period last year, a performance that puts the market on track for the best first quarter since 2021, according to data from the London Stock Exchange Group. 

The market was given fresh momentum last week after two private-equity owned companies set out IPO plans in a bid to take advantage of the more benign conditions.

Germany beauty retailer Douglas, owned by CVC, is aiming to raise €1.1bn on the Frankfurt stock exchange and is seeking a valuation of €6bn. Dermatology group Galderma, controlled by Swedish buyout group EQT, revealed it is seeking to raise $2.3bn in an IPO on the Swiss bourse.

“We are at the early stage of a recovery in the IPO cycle,” said Suneel Hargunani, the co-head of equity capital markets for Europe, the Middle East and Africa at Citigroup. “Confidence will build on a deal by deal basis.”

Management teams and bankers have taken confidence from several major European stock indices, including Germany’s Dax and France’s CAC 40, hitting record highs this year. The broad Stoxx Europe 600 index is up 5 per cent this year and has climbed by almost a fifth since the start of 2023.

With the exception of 2021, when the listings market on both sides of the Atlantic was galvanised by the effect of interest rate cuts, European IPOs have raised more this quarter than at any comparable point since 2015, according to LSEG data.

But bankers caution that IPOs will need to be well received if the market is going to build further momentum.

“Aftermarket and pricing success will contribute to expanding the pipeline but the sentiment is still somewhat cautious,” said Stephane Gruffat, co-head of Emea equity capital markets for Deutsche Bank.

Shares in two of the biggest European IPOs this year — German defence contractor Renk and Athens International Airport — have climbed since the companies listed last month.

There are several high-profile companies lining up to launch IPOs should the wider European stock market continue to head higher, an outcome analysts have said is more likely if the European Central Bank starts cutting interest rates. The ECB last week signalled June is the earliest it is likely to cut rates after it lowered its forecasts for inflation for this year and next.

Italian luxury sports shoe brand Golden Goose, owned by UK buyout firm Permira, and Puig, the Spanish beauty and fashion group behind brands including Charlotte Tilbury, have both signalled plans to list.

According to people familiar with the matter, private equity group CVC is also reviving plans for an IPO after postponing them last year. CVC declined to comment.

The German transportation start-up Flix, which owns the Greyhound brand in the US, is weighing launching an IPO as soon as June in Germany at a roughly €4bn valuation, according to people familiar with the matter. That would make it the first venture-backed IPO in Europe this year. Flix declined to comment.

“Volatility is low, markets have been fairly buoyant, inflation feels like it’s more in check and people are now fixed on rate cuts for June, and there’s a pretty big backlog,” said Lyle Schwartz, head of Emea equity capital markets for Evercore. “The dials are green and these well-telegraphed deals are smart to take advantage before things may get a little more volatile.”