Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Investors have more and more reasons to demand a price discount on European IPOs.

They've made paper losses on Nordic payments processor Nets after its debut last month. Innogy, the German renewables group separated from RWE, fell below its issue price on Monday after listing last week. People thought big IPOs avoided share-price weakness because of their increased liquidity. But that also makes them easy to sell.

Meanwhile, investors wasted time and effort examining three deals that were pulled: telecoms business Telxius, German real estate group OfficeFirst, and fitness chain Pure Gym.

Each situation has an explanation of sorts. Nets priced its IPO the day before a sudden reversal in global market sentiment. Telxius shot itself in the foot by bundling together undersea cables with mobile towers, an unappealing and unfamiliar mix for investors. Pure Gym marketed its IPO just after the backers of listed peer Gym Group did a big share sale. Gym Group's share price fell during its rival's marketing process, thereby undermining the offering.

Then there's the U.S. Federal Reserve. Rising expectations of a rate rise in December have pushed up bond yields. That, in turn, has undermined sectors and IPO investment stories with yield attractions such as real estate, telecoms and utilities.

Poorly Fed
Recent European IPOs have been in sectors that have suffered amid expectations of a U.S. rate rise
Source: Bloomberg

Throughout the OfficeFirst marketing period, the European real estate sector fell 9 percent. European utilities were down 6 pct in the two weeks prior to Innogy's float.

The situation probably looks worse than it is. Since Brexit, five European IPOs have been announced and pulled. In the same period last year it was 15.

Still, the overall impact is discouraging for the market, and comes at a critical moment for British IPOs in particular. The referendum predictably killed sales of new stock in London, with volumes falling from 3.7 billion pounds ($4.5 billion) to 106 million pounds year-on-year in the period since June 23. But as of today there's a strong catch-up pipeline, with 2.7 billion pounds of new stock being prepared for sale.

Jam Tomorrow
U.K. IPO activity has been deferred by Brexit

The slate includes the kind of international businesses that the U.K. stock market likes right now because of sterling's plunge. Convatec, a medical products group, derived 48 percent of its revenue from the Americas last year. TI Fluid, which makes automotive systems, is a globally diversified business too, while software group Misys operates in over 40 countries.

These investment stories are different to the recent IPO flops. But unhappy investors should demand a bigger discount all the same.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net