IPO Watch Europe Q3 2012

European IPO markets enjoy second wind after Olympics

In Q3 2012, PwC’s IPO Watch Europe survey reported 57 IPOs raising €4.4bn, compared with 81 IPOs raising €0.7bn in Q2 2012 and 121 IPOs raising €9.4bn in Q3 2011. The third quarter was dominated by the listing and capital raising of Sberbank, the largest commercial bank in Russia, which raised €4.0bn in September.


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Philip Suter: Welcome to our quarter three IPO watch review. I am joined here by Mark Hughes and Katya Kuznetsova. So Mark, in what has been an excellent summer of sport, have the IPO markets performed to the same sort of level?

Mark: Well Phil as we predicted when we sat here at the end of the second quarter, this quarter has proved to be relatively slow for the first couple of months of the quarter, although it has finished on more of an up as we go into the final quarter of the year. I mean Q3 we saw some 57 IPOs raising €4.4bn. That said in terms of this quarter, the number was really dominated that €4.4bn, some €4bn of it was from Sberbank which is the largest commercial bank in Russia which sought a main market listing in London towards the end of the third quarter.

Philip Suter: Following this strong end to the quarter – what does this sort of pose for the rest of the year?

Mark: Well one of the sort of more encouraging signs is that we have seen the traditional IPO indicators so around the volatility indices, the VIX index, along with actually how the main markets have performed, actually trending reasonably well. So we have had a relatively stable period for some time and if that is going to be sustained then I do actually hold some, some hope for a bit of an up-tick in activity and we have seen that with some of the deal announcements. But I would say that market confidence is still relatively low and it can, relatively small things, can jitter the markets quite significantly.

Philip Suter: And Katya – how is the pipeline for quarter four and the first quarter of next year shaping up?

Katya: Pipeline remains strong, pipeline has been building up over the last couple of years because of subdued IPO activity in the markets. There have been a number of large IPOs announced that would come to the market in Q4 and going into 2013, and that includes Direct Line in the UK; Telefonica O2 in Germany; other continental European companies and also importantly, there is a new wave of Russian companies that are expected to come to London market following the success of Sberbank IPO. That includes Megafon, one of the largest mobile operators in Russia; Promservis Bank; MD Medical Group and hopefully many others.

Philip Suter: And Mark – the technology sector seems to be getting a lot of press at the moment, particularly in the UK, what is the driving force behind this?

Mark: Well I guess the real back-drop to this is over the last few years we have seen a number of technology businesses looking to the US markets to raise money, and that’s been primarily around actually valuation arbitrage, the US markets looking more attractive in that perspective. It is encouraging actually though, in the last few weeks we have seen the UK Government putting out some outline proposals which will make the UK markets more attractive for some of these faster-growing businesses to access the London markets – primarily around easing some of the conditions around free-float levels on IPO. I think it is very encouraging that UK Government is looking at maybe amending some of the roles making them more flexible to encourage more companies to list in London. That is also in line with what other European markets are doing. We have seen the new platform opened by Euronext for small and medium enterprises. So again to boost the activity from that and of the market, and to make London and the European markets more competitive compared to the US market.

Philip Suter: And Mark – looking further afield, how have the US markets performed this quarter?

Mark: Well the US has, has fared reasonably well during the course of the quarter. They have had some 29 IPOs raising some $6.6bn of which roughly half of that has been raised by the Santander Mexico IPO on the New York Stock Exchange. In terms of sectors that have done well, we have seen financial services and technology continuing to perform well in terms of new issues and actually we’ve, one of the things that the US has done well is, is private equity, so sponsor-back deals, where a good proportion of those transactions have been from, from private equity.

Philip Suter: And Katya – are we seeing consistent themes in Asia?

Katya: We are certainly seeing some very interesting trends emerging in Asia. Asia continues to raise the bulk of global IPO proceeds as have been the case for the last couple of years. However, Hong Kong, we expect Hong Kong to lose its crown as the top IPO market which it had held for the last three years, because the bulk of activity, most of the IPO activity this quarter this year, is in South-East Asia. Indeed this quarter we have seen two very large IPOs, one in Japan, a re-privatisation releasing of Japan Airlines raising $8.4bn and the second very large IPO out of Malaysia, IHH Healthcare, raising over $2bn. So we are seeing some very significant activity in South –East Asia and not much in terms of large IPOs in Hong Kong.

Philip Suter: Well, it has been a very interesting quarter, without necessarily answering the questions of whether activities are going to bounce back but thank you both very much for your thoughts and thank you very much for watching and we look forward to seeing how quarter four performs.

The traditional IPO indicators, such as market volatility and stock market indices, have improved as the quarter progressed leading to some encouraging signs as we enter the final three months of 2012, with a number of high–profile companies signalling their intention to float, including Direct Line, Megafon, Telefonica’s German O2 operations and Talanx.

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