Europe’s Low IPO Listings Pose Challenge to Capital Markets

Both the value and the volume of European initial public offerings (IPOs) have dropped to their lowest level in 14 years.

Companies raised 2.4 billion euros (about $2.6 billion) through stock market listings in the first half of the year, with the number of public listings in Europe dropping to 34, the Financial Times (FT) reported Wednesday (Aug. 2). Both numbers are the lowest since 2009.

The report attributed the situation to fears of rising interest rates and record-high inflation, which are driving many companies to shelve IPO plans. In addition, European companies are considering listing in United States markets that offer access to a larger pool of capital.

The news of the decline in European IPOs has provoked a response from policymakers, according to the report. The United Kingdom is preparing a series of reforms aimed at encouraging investment in high-growth businesses, while the European Union is working to simplify the listing process across the bloc and to make smaller firms more visible to investors.

“There is a recurring theme of some European companies preferring to list abroad because there’s better liquidity in the U.S.,” said Julio Suarez, director of research at the Association for Financial Markets in Europe (AFME), per the report. “Structurally, U.S. capital markets are more attractive to risk capital.”

Gary Simmons, managing director at AFME, added in the report: “I think it’s getting to the point now both in Europe and the U.K. [where] people are realizing it’s more urgent than it had been in order for these jurisdictions to keep up.”

It was reported July 20 that bankers at Bank of America believe it could take some time before there is a flurry of new IPOs in Europe.

“It’s a gradual reopening rather than a flood of deals,” James Palmer, Bank of America’s head of equity capital markets in Europe, the Middle East and Africa, said at the time. “Indices have performed well, but a lot of the individual moves below the surface are more mixed. History will tell you that a lull in IPO markets can last for a two-year period before a recovery emerges; it looks like history is repeating itself again.”