Europe's IPO Trickle Could Become a Flood

After a lull, European investors are ready to take risks again

What a difference a year makes. When British telephone-directory company Yell Group PLC scheduled an initial public offering of its shares 12 months ago, the reception was so tepid that it yanked the planned listing. On July 9, Yell tried again, and Britain's largest yellow-page provider, which also does lots of business in the U.S., had no trouble raising an estimated $2.1 billion. "There has been quite a big change," says Rick Lacaille, chief investment officer at State Street Global Advisors Ltd. in London. "Last year, we were still in the grips of incredible nervousness about the equity markets. But now, when people come to market, they get a proper hearing."

Indeed, Yell's successful debut is seen as a sign the IPO market is about to make a comeback. It's the latest in a trickle of well-received IPOs across Europe that could become a flood. Fourteen successful IPOs hit European exchanges in the first quarter, followed by 23 more in the second, according to PricewaterhouseCoopers in London. Total deal value, including secondary stock offerings, rose from $2.8 billion in the first quarter to $13.3 billion in the second, says Dealogic, an investment banking research firm in London. Judging by the number of IPOs and other stock issues in the pipeline, bankers predict total issuance this year could top $36 billion. "Investor risk appetite has changed enormously," says John Hyman, co-head of European coverage in Morgan Stanley's global capital markets division.

Why now? For one thing, market watchers are convinced that the continent's bourses have hit bottom and are turning up -- despite continued sluggish growth prospects in the larger European economy. In addition, profits for European companies are expected to rise on stronger demand. Thomson Financial predicts corporate profits will jump 31% this year after falling by 22% last year. That has helped buoy the Standard & Poor's Euro index 4.43% so far this year. Healthier stock markets make it easier to raise capital through equity, so more companies are casting a line -- and investors are biting. "If the markets show they have resilience, we could see a flurry of activity in the primary equity markets in the second half," says Dante Roscini, global co-head of Merrill Lynch & Co.'s Equity Capital Markets group.

A day before Yell's public trading debut, Bank Austria Creditanstalt, a corporate and retail banking unit of Munich-based HVB Group, raised $1.08 billion by listing shares on Vienna's stock exchange. Investors piled into the shares based on hopes for continued strong growth in the bank's rapidly expanding business in Central and Eastern Europe. Bank Austria, the region's biggest bank, has almost 900 branches in 11 countries and is well placed to profit from European Union expansion next May.

Other companies that have successfully tapped equity markets for the first time include Hera, an Italian utility, and Greece's Ipirotiki Software. Blue chips are also cashing in. France Télécom issued $16.9 billion in new stock in April.

Behind the boomlet of IPOs and other new equity is a belief that stock markets may have finally turned the corner. True, the first quarter was tough-going for share prices because of concerns ranging from SARS to the war against Saddam Hussein. However, now that those threats have receded, investors are making bigger bets. And lower interest rates and fears of a bond market bubble have made fixed-income securities less attractive to some investors. While no one expects a return to the anything-goes IPOs of the late 1990s, market experts see little reason for listing activity to taper off later this year.

But unlike the Internet and telecom IPO boom, bankers say low-tech companies with predictable earnings like utilities will lead the way. "The second half is getting off to a good start," says Tom Troubridge, head of the Capital Markets Group of PricewaterhouseCoopers in London. "That will inject confidence into the market."

As the recent flurry of stock listings shows, reports of the death of the European IPO market have been greatly exaggerated. It's a far cry from the frantic pace -- and huge valuations -- of a few years ago. But investors in fast-growth companies like Yell finally have something to shout about.

By Laura Cohn in London

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