Private Equity Firms Set Sights on Weak IPO Stocks in Europe

(Bloomberg) -- The steep drop in share prices of recently-listed European companies is making them prime targets for buyout firms on the prowl for cheap assets.

Polish parcel-locker operator InPost SA, U.K. online shopping emporium THG Plc and German enterprise software developer SUSE SA have been reported to attract private equity suitors in recent weeks. All three listed on European exchanges over the past 18 months and are now trading below their initial public offering prices.

A wave of businesses have gone public in Europe over the past two years, particularly tech and online services companies during the pandemic. But appetite for high-growth assets has cratered in recent months as economic reopenings, the prospect of rising interest rates and surging inflation weigh on sentiment.

“The ultimate arbiter of investment return is the valuation paid to access a company’s profit and cash flow streams,” said Russ Mould, investment director at AJ Bell Plc, adding that the poor performances created an “opportunity for the cash-rich, patient private equity industry to take a firm private and work on a turnaround without the pressure of regular earnings releases.”

THG has plunged 79% since its September 2020 IPO in London, while Amsterdam-listed InPost has lost 66% of its value since going public in January 2021. SUSE is trading only slightly below its listing price, but has declined 35% since reaching a high in January. 

Almost two-thirds of the IPOs that raised at least $500 million on European exchanges since the start of 2020 are now trading in the red, data compiled by Bloomberg show. Russia’s invasion of Ukraine in February extinguished any remaining risk appetite, putting a lid on new offerings across the globe. 

“At the right price, more firms are set to be snapped up by suitors searching for value and growth in one fell swoop,” said Susannah Streeter, an analyst at Hargreaves Lansdown Plc. Still, “companies delivering services crucial for digital transformation are expected to continue to be sought after by investors, despite the headwinds affecting the tech sector right now,” she said.

In the meantime, the IPO market has already begun to adapt to the rotation away from growth assets. Oil company Var Energi ASA and microelectronics firm Technoprobe SpA, this year’s biggest European listings, have surged 39% and 20% since their respective debuts in February.

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