Appetite for Europe’s buyout listings wanes
European private equity-backed companies that floated in the second quarter have slid 1.8 per cent below their debut prices, cooling investors’ enthusiasm as the pipeline of new listings continues to grow.
At the end of June, buyout-backed new issues, which accounted for nearly half of the flotations in Europe, underperformed other types of listings, which have risen 3 per cent since the first day of trading, according to weighted average returns compiled by EY, the professional services firm.
The underperformance during the second quarter contrasts with stronger returns for the private equity-backed IPOs in the first quarter, which were up 13.8 per cent on average at the end of June.
By comparison, other company listing in the first quarter rose 44 per cent. However, this was largely due to the 80 per cent increase of Altice, the European cable group which in january raised €1.3bn on Amsterdam’s Euronext exchange. Excluding Altice, which accounted for half the volume of new issues in the first quarter, private equity floats during that period have overperformed by 12 percentage points.
The poorer performance in the second quarter brings highlights a shift in market sentiment as investors’ appetite for new stocks has abated. Fund managers have more choices and have gone beyond the phase of significantly lifting their exposure to Europe, which had been reduced during the eurozone crisis.
“The attitude to pricing has changed because at the beginning of the year there was a lot of money coming into UK equities, and there was a real demand for new ideas,” said Richard Bullas, a UK Portfolio Manager at Franklin. “What was a sellers’ market at the start of the year has become a buyers’ market now,” he added.
In the US, however, the data shows little difference in performance between private equity-backed floats and other types of flotations, with both types advancing around 20 per cent since first day of trading
Alasdair Warren, head of European financial sponsors at Goldman Sachs said the valuations of IPOs during the second quarter had fallen 10-15 per cent compared with the first quarter, in part because investors had become more price sensitive, as well as having a greater selection of new issues to choose from.
“The IPOs of good companies with differentiated stories are still getting done, albeit in some cases at slightly lower valuations, but some of the less differentiated companies are struggling,” Mr Warren said. “Private equity owners are having to be more thoughtful about positioning and pricing IPOs now.”
Disappointing flotations during the second quarter have included The Card Factory, the UK greeting cards retailer owned by Charterhouse, which has fallen 9 per cent since floating in May.
The share price of eDreams Odigeo, the online travel agent backed by Permira and Ardian which operates under the Opodo brand, has more than halved since its €10.25 debut price and Braas Monier, the German roof tile maker owned by Apollo and TowerBrook, has slid 5 per cent since listing in June.
However, Carlyle-backed Applus, a Spanish certification group, is up 6 per cent, UK road recovery specialist AA has advanced 2 per cent and Com Hem, a Swedish cable company owned by BC, is up 8 per cent.