Stymied by too-volatile home markets, European companies are looking to make their stock market debuts in other regions, particularly the United States, in the hope of achieving a smoother ride to public life. While initial public offerings (IPOs) world-wide have had a choppy few months as eurozone debt worries hit markets across the globe, with October the slowest month for new listings since May 2009, Asia and the United States have begun to bounce back.
Yet Europe hasn't seen an IPO of more than $200 million since July's listing of Spain's Banca Civica, and with little sign of things improving any time soon, companies keen to fund their development are becoming tired of waiting for markets to stabilise. "Companies will look at other listing locations. Equity capital markets (ECM) bankers are going to be spending a lot more time taking European IPO candidates elsewhere," said Reinout Koopmans, co-head of ECM for the Europe, Middle East and Africa (EMEA) region at brokerage Jefferies.
A string of European firms, including Italian fashion house Prada SpA, have already chosen to list in Hong Kong this year and others are following suit, with London-based jeweller Graff among those eyeing the move next year. A number of large European-listed companies are also considering a secondary listing in Hong Kong or Shanghai, said Peter Guenthardt, head of ECM for Europe, Middle East and Africa at UBS.
While those involved in running deals say Europeans heading to Asia are likely to be limited to companies with a strong China growth story, mainly luxury consumer brands or natural resources firms, the United States could offer alternative opportunities. "One or two years ago not many firms would have been seriously thinking about the US. Now many issuers want to understand the benefits ... versus Europe," said Koopmans. "Previously it was specific to certain sectors, such as technology and media, but now we are seeing interest from companies across the board."
Combined, IPOs on the New York Stock Exchange and Nasdaq so far this year have raised more than new listings in the whole of Europe, according to Thomson Reuters data. The United States, which last week saw its biggest week for IPOs since May, has also overtaken Hong Kong as the top destination for market debuts.
"Deals are getting done in the US and getting done well. That market is still open and there is a healthy level of issuance," said Viswas Raghavan, global head of ECM at J.P. Morgan. "The backdrop in Europe is difficult, so companies are looking at their options and asking 'where can I get a deal done in this climate?'"
Companies need to consider how well investors in another market understand their business, said bankers, meaning such a move is more likely to be an option for companies with a global presence. "It's clearly something that we talk a lot about with companies ... You have to do a trade-off between what makes sense from a business perspective," said UBS's Guenthardt.
Following a dip in interest in going to the United States after the introduction of the Sarbanes-Oxley act in 2002, companies have become more comfortable that they can meet US regulatory requirements, said bankers and lawyers. There are also several aspects of the US process, which can help smooth the ride of a new listing, bankers said, making it a more attractive destination for firms in volatile markets.