What’s Fuelling Europe’s Deal Boom 

A gloomy economic reality and surging stock markets make for an unlikely combination, one that has kept bankers busy with both distressed cash calls and new listings in Europe and led to a whopping $127 billion of fresh equity issuance this year.

European exchanges have hosted 1,300 capital increases and initial public offerings in 2020, with proceeds rising to the highest level since 2017, data compiled by Bloomberg show. The bulk of the proceeds come from spot new share sales, which hit a decade high of $58.1 billion.

Many companies rushed to raise cash in the first half of the year as the coronavirus outbreak and measures to curb its spread hit businesses hard. Meanwhile, stabilizing European stocks over the summer months opened the door for new listings in the final four months of 2020.

What’s Fuelling Europe’s Deal Boom 

There have been few years in recent memory where such a rush of emergency fundraising has gone hand-in-hand with a flurry of IPOs. In the second half of 2008, when the last financial crisis started to take hold, listings quickly evaporated as cash calls ramped up. This time around, floats resumed after only a brief pause.

“We’ve had a surprisingly constructive year in equity capital markets,” said Gareth McCartney, UBS Group AG’s head of equity capital markets for Europe, the Middle East and Africa.

Coffee giant JDE Peet’s BV, Italian mask maker GVS SpA and video-conferencing firm Pexip Holding ASA all went public in May and June. And IPOs really started picking up the pace from September, with e-commerce companies Allegro.eu SA and THG Holdings Plc raising billions of dollars and a record number of Norwegian businesses making their debuts.

As the year went on, companies increasingly eyed growth opportunities, with some of the biggest stock offerings intended to fund acquisitions. Siemens Healthineers AG raised $3.2 billion in September to help finance its purchase of Varian Medical Systems Inc., while Cellnex Telecom SA boosted its war chest with a $4.6 billion rights offering in August.

Bright Outlook

Listed companies are likely to continue raising cash to plug funding gaps in response to the coronavirus crisis, as well as for growth and M&A, said McCartney. “But on balance, we expect such follow-on fundraising to pare back, and be offset by a greater volume of IPOs,” he said.

A record rally for European stocks in November brought the Stoxx 600 benchmark to levels last seen late February. With listing conditions much improved, deals are continuing well into December and are already lining up for 2021.

Some European conglomerates are looking to slim down and potentially list units, like Vodafone Plc’s anticipated towers IPO. And the biggest driver of IPOs could well be private-equity firms, though, as rallying equity markets now offer compelling exit valuations for some of their assets.

Swedish private-equity firm EQT AB is said to be planning at least three large disposals next year, including a potential sale or listing of cybersecurity company Utimaco GmbH and possible IPOs for German enterprise software developer SUSE and pest-control business Anticimex.

©2020 Bloomberg L.P.

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