Speeding Up IPOs: A New Normal in European Markets?
Banks are accelerating the marketing timeline for initial public offerings (IPOs) in Europe, aiming to shield new listings from the volatility sparked by global events. This shift reflects a growing trend towards de-risking IPOs and adapting to a rapidly changing market landscape.
The Shrinking Bookbuilding Window
The average bookbuilding period – the time banks solicit bids from investors after an IPO announcement – has fallen to a record low of five days in Europe so far this year, down from ten days in 2022, according to data from Dealogic. This compression isn’t limited to Europe; the US is also seeing a similar trend, with marketing periods nearing record lows.
Recent IPO Successes Demonstrate the Strategy
Prague-based Czechoslovak Group (CSG), Europe’s largest defense IPO, completed its bookbuilding in just three days, securing a €33 billion valuation upon its Amsterdam debut. Austria’s Asta Energy followed suit, marketing for only four days and subsequently soaring 46% on its first day of trading in Frankfurt.
Pre-Marketing: The New Key to Success
Banks are increasingly engaging with potential investors for months before a public announcement. BNP Paribas, involved in the CSG deal, reportedly engaged with over 150 investors over several months, effectively conducting a “private IPO” to gauge interest and secure commitments. This proactive approach allows banks to establish a clear understanding of likely pricing and identify key investors before the formal listing process begins.
Global Market Volatility Fuels the Change
The acceleration of IPO timelines is largely a response to increased market uncertainty. Last year, Donald Trump’s tariffs triggered global market declines, pausing dealmaking as companies assessed the impact. More recently, events like Trump’s attempt to acquire Greenland have added to market jitters. Software group Visma is now considering delaying its London IPO following a sector sell-off, and Liftoff Mobile postponed its Wall Street IPO, citing “market conditions.”
Cornerstone Investors: Adding a Layer of Security
Alongside shorter bookbuilding periods, IPOs are increasingly relying on cornerstone investors – entities that commit to purchasing a significant portion of the offering. This provides a degree of security by locking in demand, although it can reduce flexibility later on. CSG secured commitments of €900 million from BlackRock and a Qatar Investment Authority subsidiary, while Asta Energy garnered €55 million from four cornerstone investors.
A Return to Pandemic-Era Tactics
The current strategy echoes the European IPO market during the coronavirus pandemic, where listings returning in 2020 and 2021 also prioritized securing cornerstone investments and shortening marketing phases. JDE Peet and The Hut Group, two significant European IPOs in 2020, secured cornerstone investments for over half their proceeds and were marketed for just three and four days, respectively.
Investor Diversification Plays a Role
Global investors are diversifying their portfolios, often shifting focus towards Europe. This increased demand allows banks to compress bookbuilding windows and prioritize engagement with key investors.
Frequently Asked Questions
Q: What is bookbuilding?
A: Bookbuilding is the process banks use to solicit and record expressions of interest from potential investors in an IPO.
Q: What is a cornerstone investor?
A: A cornerstone investor is an institution that commits to purchasing a significant portion of shares in an IPO, providing a degree of stability.
Q: Why are IPO timelines shrinking?
A: Shorter timelines are a response to increased market volatility and a desire to de-risk IPOs.
Pro Tip: For companies considering an IPO, proactive investor engagement and securing cornerstone commitments are now more critical than ever.
What are your thoughts on the changing IPO landscape? Share your insights in the comments below!
