It’s a challenging time for ECM issuance. European issuance is down 36% compared to previous years, with only Germany and the UK making it into the top ten global issuers of Equity deals to date in 2018. So what does the future hold in store, according to the panel at this morning’s Thomson Reuters IFR ECM Conference?
Clearly this past week we’ve seen some high-profile issues struggling. General market confidence has meant sellers pushing up pricing, leaving investor appetite diminished and negatively affecting performance. The panel’s view is that investors are, understandably, generally getting cold feet at the first sign of negativity; and while it’s attractive to blame ‘naked shorting’ for this, the general view is that it’s something of a red herring, and that pricing of an IPO is a much more important element in determining the initial performance of a new issue.
Underlining this, globally IPO issuance is up 16%. The strength of US demand continues, and new rules in Asia mean some highly attractive and successful new market entrants there; some European IPOs have been equally successful but the ‘equity story’ needs to be strong and pricing needs to be aligned. Investors have some risk appetitive but no tolerance for negative performance. Investors will continue to look for price concessions to mitigate their recent aftermarket losses.
Investors and issuers alike need to understand that it can sometimes be a rocky couple of days at the date of issue, but that the IPO market is not a one-day market. Fundamental investors should be the cornerstone of any IPO: investors who understand the company and who’ll take a long-term view of their investment. Digging deep into understanding the needs of, and aligning with, ‘Conviction investors’ is more likely to yield greater success, and advisors may need to adapt their marketing accordingly.
The ‘Early Look’ process can help but it’s frequently too vague and without enough detail; issuers often shy away from revealing too much granular financial information, in turn affecting the investor process which relies on detailed financials to take a position. The panel’s view is that Early Look feedback on pricing is critical and should be ignored at the peril of both issuers and advisors alike.
- There will be some deals launching successfully before the 2018 year end, but some will fall away – this ‘natural selection’ is not a bad thing and means the market is regulating itself;
- We’ll see more ‘carve-outs’ and Dual Tracks across Europe;
- While European new issues may struggle given the difficult macro environment, issuers and their advisors fundamentally need to work on ensuring a really strong ‘equity story’ and sensible, fair pricing to ensure success.
How can Black&Callow help?
- IPO Research Online and iRoadshow, the two newest additions to our online services, give issuers and their advisors unrivalled insight into investor engagement from Early Look through Investor Education to management Presentations and IPO Research.
- This insight helps advisors and issuers understand who the most interested and engaged investors are, as well as their concerns and pressure points, via our unique Page Level Reporting – helping build a better strategy for, and a better success rate with, key investors
- Equally our traditional financial printing services, alongside our online services, help speed up execution and meet regulatory compliance needs while helping reduce the cost of launching new issues.
For more information, contact Tim Black at Black&Callow on 020 3794 1720 or via firstname.lastname@example.org
This morning’s panel comprised:
- Craig Coben – Bank of America Merrill Lynch
- Luis Vaz Pinto – Societe Generale CIB
- Suneel Hargunani – Citigroup
- Silvia Viviano – JP Morgan
- William Smiley – Goldman Sachs
10th October 2018
No copyright infringement is intended. All content is from notes taken at this morning’s event.