(Bloomberg) -- The European market for initial public offerings could be in a deep freeze until the back end of 2020, conjuring the prospect of yet another slow year as the coronavirus outbreak roils global equities, market participants say.
“The earliest IPO window, as things stand, is in September, if not 2021,” said Fabian de Smet, global head of equity syndicate at Berenberg.
Volatility will have to come off first, as more than 90% of European floats in the last 20 years priced when the Cboe Volatility Index, a widely used gauge of expected market swings, was below 25, according to De Smet. On Monday, the VIX was near 65 points. With markets in flux, the IPO window is a “moving target” in either direction, he said.
Dramatic swings have become all too common in global stock markets over the past five weeks as investors try to price in the impact of the coronavirus, which has forced economies to shut down and put millions out of work.
“We see the impact on market volatility, equity indexes and valuations continuing for the foreseeable future, with a recovery not practical until Covid-19 is under control,” said Paul Go, global IPO leader at EY, adding that IPO activity in Europe is unlikely to improve until the second half of the year at the earliest.
IPOs take months of preparation and last at least four weeks from announcement to listing, requiring relatively stable markets for an extended period. Moreover, firms looking to list are likely to wait for earnings to improve in order to put their best foot forward and have their valuation expectations met.
“Going by Street estimates projecting a sharp rebound in GDP in the third quarter, IPO activity will only pick up in the last quarter of the year,” said Eric Li, research director at Coalition Development Ltd., which does analysis of the investment banking industry.
The pandemic has upended dealmaking, replacing in-person investor pitches for IPOs with video conferences and leading to several canceled listings. Offerings worth $1.1 billion have failed to make it to the finish line this year, while barely any new deals have been announced, leaving the calendar bare.
There were 17 listings worth $1.5 billion in Europe in the first quarter, the lowest number of offerings since the third quarter of 2009, according to data compiled by Bloomberg.
Coming on the back of a decade low in 2019 already, this year could turn out to be worse, despite a long list of IPO hopefuls waiting in the wings.
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