Call it a downturn, a drought or—as one analyst put it—a freefall, the impact of plunging stockmarkets on IPOs is clear. Through to November, the volume of successful floats by European companies was less than a third of the total in 2007, with a particularly steep slide in the second half of the year. (See chart.)
Of those that did manage to list, few were high-profile household names. The largest IPOs in 2008 included New World Resources, a Czech coal producer that raised £1.1 billion (€1.3 billion) when it listed in London, Warsaw and Prague in May, and EDP Renovaveis, a Portuguese renewable-energy company that raised €1.8 billion on NYSE Euronext Lisbon a month later. Many more companies dropped IPO plans before even publishing a prospectus.
Indeed, the past year has had a record number of floats in Europe withdrawn. In recent months, companies ranging from Polish house builder Dantex to German solar-energy group Schott Solar have delayed or cancelled their market debuts. And the long-awaited, multi-billion euro IPO of German railway operator Deutsche Bahn now probably won’t take place before late next year. Advisers say that, at best, the earliest they expect an upturn in the IPO market is the second quarter of 2009.
In the meantime, CFOs of companies that hope to float are rethinking their plans, even if they expect the market to pick up next year. During boom times, junior markets, such as London’s AIM, offered a route to market for companies large and small, profitable and otherwise. With so much uncertainty, only the strongest companies will be able to withstand the listing process.
“There are two positives to a down market like this,” says Peter Laveran, a partner in the London office of law firm Covington & Burling. “One is that it causes companies that shouldn’t go public to take a more realistic look at where they are in the process.” The second, he says, is a “cautionary tale for later on, when the markets pick back up.” When demand for new listings returns, not every discarded prospectus deserves to be dusted off. “Just because it’s cheap equity doesn’t mean it’s the right cheap equity,” notes Laveran. “If the window closes again once a company is public and then it needs more money, it’s much more complicated to get at that point.”