Europe's market for initial public offerings may be about to perk up after three months of droop. But not for very long. The $9.6 billion raised globally via new issues in 2016 so far, the lowest quarterly total since 2009, according to Renaissance Capital, sets the tone for the rest of the year.
Equity capital market professionals often talk of windows of opportunity, when market volatility is low and political uncertainty absent. That window is open right now, at least a crack, giving some support to the invariable optimism displayed by deal jockeys. Equity market volatility has fallen to helpfully low levels: the VIX index, a key measure of fear, closed on March 30 at 13.56, a comfortable level relative to its recent February high of 28.14.
Investors may also be encouraged by the decent post-issue performance of those brave enough to come to market. Shares in the 11 companies that have raised $100 million or more in Europe so far this year have risen by an average of 8.7 percent, according to Reuters Breakingviews' calculations. The average first-day "pop" was 7.3 percent. That is healthy in a European context, especially since asset manager BlackRock fumed about the lack of European IPO discounts, in a letter to investment banks in 2014.
The pipeline still looks relatively light, though there are a couple of exceptions. Italian lender Banca Popolare di Vicenza is due to raise around $1.7 billion, while Swiss semiconductor-parts manufacturer Vakuum Apparate Technik is targeting a raise of up to $659 million. One reason may be that the UK's June 23 vote on its membership of the European Union is likely to kill any appetite for attempting an IPO. Indeed, it is possible that deal flow will stop by the middle of that month or earlier. With little time between the outcome of the referendum and the start of the summer holiday period, it is hard to imagine much will get done before September. And markets face yet another test in November, when US voters will elect a new president. Europe's IPO market is offering its players a few ladders, but this year promises an unusually high chance of snakes.