U.S., Asia IPO Deluge Leaves Nascent Europe Revival in the Dust

(Bloomberg) -- It is finally raining initial public offerings in Europe, bringing relief to the slowest year in more than a decade, yet it is nothing compared with the listing frenzy in the U.S. and Asia, where much deeper tech markets are fueling the boom.

Over the past two weeks, at least 12 IPOs have been flagged in Europe, which will add a chunk to the $8.3 billion raised by 56 companies in the region this year, according to data compiled by Bloomberg. Still, proceeds are tiny fry compared with the $79.9 billion generated by listings in the U.S. Asia-Pacific is a close second with $74 billion.

The U.S. IPO market reopened this summer for companies whose businesses benefited from coronavirus lockdowns, such as those in the health-care, biotech, software and cloud computing and gaming space, according to Jason Manketo, global co-head of law firm Linklaters’ equities practice. “In Europe, the rebound has been far more muted, in part due to the fewer number of potential IPO candidates operating in these sectors that would look to list on local exchanges,” he said.

The U.S. is racking up huge tech listings from the likes of holiday rental firm Airbnb Inc., food-delivery behemoth DoorDash Inc. and data-mining company Palantir Technologies Inc. And Asia could well take the crown of the largest global IPO ever from Saudi Aramco through the proposed float of Ant Group in Hong Kong and Shanghai.

Meanwhile, Europe is having trouble hanging on to the few lockdown winners it does have. “As soon as a company comes to market that’s in the biotech or health-care space, it gets a lot of traction from U.S. investors,” said Fabian de Smet, head of investment banking for continental Europe at Berenberg. This attention coupled with better analyst coverage and a larger base of listed peers has lured many European companies overseas.

Last month, Covid-vaccine contender CureVac BV, based in Tubingen, Germany, started trading in the U.S. after raising $213 million in an IPO. The stock more than tripled on its debut. Such share-price surges are less common this side of the Atlantic and the outperformance of U.S. stocks in comparison to Europe has created a valuation gap for IPO hopefuls.

“Higher multiples in the U.S. have created a virtuous cycle for American listings and a vicious one for European IPOs,” said Dan Ridsdale, global head of technology, media, and telecommunications for investment research and consultancy firm Edison Group.

No Blank Checks Here

Sector bias aside, Europe is missing out on other hot trends. While Wall Street is having a banner year for blank-check listings, they have been conspicuously absent in Europe with less investor-friendly structures keeping a lid on such offerings.

“Not only is there a smaller universe of targets here, European investors have traditionally been more skeptical of the economics of the structure,” Manketo said. A recent New York Stock Exchange proposal to allow companies to raise capital in a direct listing could present another reason for European companies to go overseas. While London allows for so-called introductions, the structure is rarely used.

The boom in tech IPOs has also largely passed Europe by, as local exchanges generally lack listing rules that give founders more voting rights and greater protections. Swedish streaming service Spotify Technology SA and U.K.-based online retail platform Farfetch Ltd. opted for U.S. IPOs in recent years.

The lack of enthusiasm for dual-class structures in Europe is a clear challenge for regulators trying to stem the exodus of new-economy companies to U.S. exchanges, according to Manketo. He referred to online beauty retailer The Hut Group Ltd.’s listing in London, whereby its co-founder will retain a golden share allowing him to veto any hostile takeover attempt for three years, “an excellent test case.”

Green Shoots

Rebounding IPO activity has made deal advisers more hopeful Europe will end the year on a happier note. “There’s a strong IPO pipeline in Europe now and we expect an increase in activity until the end of the year, especially if the bull market continues,” de Smet said.

Stock markets in the region have recovered from lows in March, stabilizing over the summer. The Stoxx Europe 600 Index is trading 9.8% down this year, compared with an 11% gain for the S&P 500 and advances in equity indexes in Japan and China.

Alongside Hut Group, Belgian fintech company Unifiedpost Group SA, mobile games makers Huuuge Inc. and People Can Fly Group SA, and Knaus Tabbert AG, a German maker of camper vans and motor homes, have announced listing plans. Other large offerings said to be in the works include Polish e-commerce giant Allegro, Swedish online bank Nordnet AB and defense supplier Hensoldt Holding Germany GmbH.

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