Not Even $1 Trillion Can Save the Decade's Worst IPO Market

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If you had doubts that the new-year equity rally lacks conviction, take a look at the European market for initial public offerings.

Even as the Stoxx Europe 600 Index added more than $1 trillion in value since hitting December lows, companies have remained reluctant to go ahead with listings on European exchanges. They’ve announced 490 million euros ($554 million) of IPOs in Western Europe in 2019, according to data compiled by Bloomberg, down 94 percent from the same period a year earlier and the slowest start to the year since the 2009 financial crisis.

Investors and companies alike remain traumatized by the sudden and hair-raising sell-off at the end of last year that shut down equity deals and left traders reeling. Many prefer to stay on the sidelines of the 12 percent rebound in European stocks this year as they expect the bull market to run out of steam in the next few months.

The latest wake-up call came from Volkswagen AG, which this week cited weak market conditions in canceling a stock sale for its Traton SE trucks division, a deal that would have been Europe’s biggest IPO of this year. Yes, the auto sector is facing major headwinds from trade war concerns and falling demand, but Brexit and the European economic slowdown make this a tough market for selling shares across most industries.

“If you’re launching an IPO, you don’t want to do it in the middle of uncertainty,” said Chris Hiorns, a fund manager at EdenTree Investment Management, which oversees about $3 billion. “Everyone is hoping for a resolution of geopolitical tensions and Brexit. We’ve seen an equity rally this year, but it’s been a weak and low-conviction rally."

One problem for Volkswagen, according to Edward Park, deputy chief investment officer at Brooks Macdonald Asset Management in London: Even if the U.S. and China strike a trade deal that alleviates demand concerns, the U.S. might potentially hit European automakers with tariffs.

“Rather than being a market problem, this is more of a sector issue,” said Park. “With market conditions vastly improved from December, European companies are eyeing 2019 IPOs; however, the current pressures on the auto sector mean valuations are under pressure."

To be fair, it’s been a slower start to the year for IPOs in the U.S. as well because of the government shutdown. But the size of the U.S. offerings leaves Europe crying in the corner: Current IPO candidates across the Atlantic include Lyft Inc. and Uber Technologies Inc., likely two of the year’s biggest offerings. Lyft is aiming for a market valuation of as much as $25 billion, a person familiar with the matter said last month.

And the European new-issue market may soon get a lift from a sector that’s much more in favor than the auto industry: Middle Eastern payments processor Network International said Thursday it plans a listing in London soon, though the plans are tentative and the company hasn’t announced the size of the deal.

Some of the biggest European IPOs that did happen this year include law firm DWF Group Plc and an IT services provider, BMIT Technologies Plc. None of the new offerings that started trading this year in Europe exceed $130 million, according to data compiled by Bloomberg.

Friday brought more sad news for European equity deals, as Spanish newspaper Cinco Dias reported that Cerberus Capital Management LP had frozen the process for an IPO of Haya Real Estate.

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Phil Serafino, Amy Thomson

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