European IPOs Outpace U.S. by Most Since Stocks Peaked in 2007
April 1 (Bloomberg) -- Initial public offerings in Europe are outpacing the U.S. by the most since stock markets peaked in 2007 after Kabel Deutschland Holding AG and Brenntag AG raised almost twice as much as the biggest American deal.
Companies in western Europe sold $6.1 billion through IPOs in the first three months of 2010, 69 percent more than U.S. offerings, data compiled by Bloomberg show. That’s the biggest gap since the fourth quarter of 2007, when the MSCI World Index of equities in 23 developed countries climbed to a record.
The rebound came after U.S. IPOs raised three times as much as European deals in 2009 and banks from Goldman Sachs Group Inc. to Barclays Plc said the region would lag behind again this year. Companies from Kabel Deutschland to African Barrick Gold Plc attracted buyers as Greece’s funding concerns eased, the European economy pulled out of a 15-month long contraction and the region’s equities rallied to the highest since September 2008. PricewaterhouseCoopers LLP now says Europe may surpass the U.S. in initial offerings for the first time in three years.
“The fact that Europe did better than the U.S. in the first quarter is encouraging for Europe -- people were much less optimistic about it when the year started,” said Tom Troubridge, the London-based head of the capital-markets group at PricewaterhouseCoopers. “Now that the macroeconomic situation has been better in Europe, markets here should be livelier than the U.S. throughout the year.”
Travelport, New Look
European IPOs stumbled in the first two months of 2010 as New York-based Blackstone Group LP’s Travelport Ltd. postponed a $1.78 billion London offering and New Look Group Plc, the Weymouth, England-based retailer owned by Permira Advisers LLP and Apax Partners Worldwide LLP, shelved its $1 billion sale.
Four European offerings raised $1.4 billion in January and February, trailing the almost $2 billion that U.S. companies sold, data compiled by Bloomberg show. The setbacks for Europe extended the drought of 2009, when only 14 companies completed IPOs, data compiled by Bloomberg show.
“We could potentially see $50 to $70 billion raised in the IPO market in Europe this year,” said Alasdair Warren, Goldman Sachs’s London-based head of equity capital markets in Europe. “Which is staggering if you consider that less than $10 billion was raised last year.”
The Stoxx Europe 600 Index retreated for four weeks from Jan. 8 through Feb. 5, the longest stretch of declines since July, as concern grew that budget deficits in the region would curb the economic recovery. The gauge of equities has since rallied 11 percent, fueling the rebound in the IPO market. Eighty percent of this year’s European deals, including the three biggest, were completed in March.
Cable, Chemicals
Kabel Deutschland of Unterfoehring, Germany, the country’s largest cable company, raised 759 million euros ($1.03 billion) on March 19. Brenntag, the Muelheim, Germany-based chemicals distributor, sold $1 billion a week later.
African Barrick, a unit of Toronto-based Barrick Gold Corp., the world’s largest gold producer, raised $873 million in London on March 19. All three companies sold more than the biggest U.S. IPO this year, the $569 million offer of Boston- based Bain Capital LLC’s Sensata Technologies Holding NV.
A recovery in the European economy, which is estimated to have expanded at a 0.7 percent pace in the first three months of 2010 after contracting in the previous five quarters, helped push the Stoxx Europe 600 to an 18-month high in March.
‘Simmering’
European leaders also moved closer to resolving Greece’s financial crisis, backing a Franco-German proposal for a mix of International Monetary Fund and bilateral loans to cut the region’s biggest budget deficit.
“I would not have been this confident two months ago, but now the IPO market is back,” said Viswas Raghavan, the London- based head of international capital markets at JPMorgan Chase & Co., this year’s biggest underwriter of European IPOs. “There has been a torrent of deals in Europe and a lot is simmering in the pot.”
Amadeus IT Holding SA, the Madrid-based flight-reservations provider controlled by BC Partners Ltd. and Cinven Ltd., said last month that it will seek to raise at least $1.2 billion in Europe’s largest IPO this year.
Barclays forecast at the start of the year that European companies would sell $30 billion in shares through IPOs, less than the $50 billion that the London-based bank projected for American offerings. So far, 21 American sales have raised a combined $3.6 billion, as nine were delayed or postponed.
Private Equity
While all seven U.S. offerings in the past two weeks have priced within or above their forecast price ranges, the first 14 of the year were reduced by 24 percent as buyers extracted concessions from private equity-backed deals and the Standard & Poor’s 500 Index slid to a three-month low in February.
Blackstone, the largest leveraged-buyout firm, cut York, Pennsylvania-based Graham Packaging Co.’s offering by 55 percent on Feb. 10. The same day, Generac Holdings Inc., the Waukesha, Wisconsin-based maker of generators backed by former bankers at JPMorgan’s private-equity unit, reduced its IPO by 29 percent.
U.S. deals have also been smaller, with American companies selling $171 million in shares on average, Bloomberg data show. IPOs in Europe averaged $303 million.
“There’s no question we were going into a pretty stiff headwind,” said Dan Cummings, Bank of America Corp.’s New York- based global head of equity capital markets. “The number of deals brought to market were reduced and the number of companies that ultimately succeeded in coming to market was less than the industry would have hoped.”
‘Both Directions’
More European IPOs have underperformed the broader stock market than in the U.S., Bloomberg data show. Of the 20 European deals in 2010, half trailed the Stoxx Europe 600, while 12 of 21 American companies have beaten the S&P 500, including all but one in the past two weeks.
Kabel Deutschland has retreated for the last five days, leaving it 4.8 percent below its IPO price.
Financial Engines Inc., the Palo Alto, California-based financial adviser co-founded by Nobel laureate William Sharpe, has climbed 39 percentage points more than the S&P 500 since it became the first U.S. IPO to price above its forecast range on March 15, data compiled by Bloomberg show.
“Success begets success, and likewise momentum can carry you strongly in both directions,” Cummings said.
While European IPOs outpaced those in the U.S. in the first quarter, two of the world’s biggest sales came from Asia.
Dai-ichi, Rusal
Dai-ichi Life Insurance Co., the Tokyo-based company founded in 1902, raised $11 billion last month in the world’s largest initial offering in two years. It was also Japan’s biggest in a decade after offerings in 2009 slumped to the lowest level in at least 20 years. In January, United Co. Rusal of Moscow sold $2.24 billion in the first ever Hong Kong listing of a Russian company. The shares have since tumbled 17 percent.
The combined value of China’s initial offerings from Shanghai and Hong Kong may surpass $100 billion, according to estimates by accounting firm Ernst & Young LLP, which might exceed the U.S. and Europe combined.
“This year has the potential to be one of the best ever,” said Chris Whitman, the London-based global co-head of equity capital markets at Deutsche Bank AG of Frankfurt. “The pipeline is quite robust.”
source: bloomberg.com
