Why are European companies shy of IPOs?

Investors continue to have an appetite for equities, as shown by the robust performance of the stock markets in the first half of the year. Major indices have posted strong gains, led by the Nasdaq 100, which rose 39%. Price indicators on the European stock markets also pointed north, with the German Dax just recently marking a new high.

Interest in the stock market, however, applies more to investors than to companies, at least in Europe. Only 75 companies went public on the 70 European stock markets and just one additional company went public on Nasdaq CM in New York. By comparison, the list of flotations in the U.S. included 79 names during the same period. But even this is a decline of 37% compared to the number of new listings in the first half of 2022. According to a report of EY, global IPO activity proceeds fell 36% year-on-year in H1 2023.

Who tops the going public list?

Of the 76 European issuers, 26 chose a Euronext segment for their stock market debut, 17 companies went public at the LSEG (London Stock Exchange Group), 11 companies launched on Nasdaq Nordic and one entered the floor on Xetra Trading in Frankfurt. With 20 companies listings, Milan provides the most debutants, followed by London (18) and Paris (14). With IONOS, Germany has contributed the issuer with the largest market cap (€2.59bn), while Admiral Acquisition Ltd accounted for the highest amount of cash raised, GBP439.8m (€514m) at the UK Main Market.

Why should companies consider going public as a viable option?

As is true for many things, timing is key with the public markets. When market conditions are poor, as they have been recently, valuations can suffer dramatic losses, sometimes irrespective of company fundamentals. However, when markets are supportive, there are a lot of advantages to floating a company. It opens access to new funding sources and thus helps companies to continue their growth path. Being public boosts public awareness of a company and this enhanced image also helps to attract talented people in an increasingly competitive market. A public listing also provides simpler options for partial exits, which eases succession planning.

Looking at this broader picture, it is clear that neglecting the multiple opportunities offered by an IPO potentially puts European companies at a competitive disadvantage.

Why are so many European companies shy of going public? Is there not enough demand from investors? Do entrepreneurs lack courage? Is there a lack of knowledge? Is the bureaucracy of a stock exchange listing too complicated and/or expensive?

The advantages of strategic advice 

This is where strategic advice can provide vital support. Strategic advisory firms, can offer a breadth of expertise and provide an essential support system for companies on the journey to going public. Expert guidance can unravel the complexities of the IPO process, making it less daunting and more accessible. They can find a way through the labyrinth of bureaucracy and help companies understand that an IPO can be a viable and beneficial option for growth and success.

One of the main benefits of advisory firms is their profound knowledge of investor relations. They understand the intricacies of the investor landscape, both in Europe and beyond, where company management may not have such a deep understanding. Their role as a bridge to international markets across Europe and the U.S., can be a significant asset for European companies seeking expansion and global relevance. By communicating strategically with potential investors, these advisors enhance companies’ appeal and credibility in the global marketplace.

Moreover, these firms are adept at crafting compelling narratives that resonate with both the investor community and relevant media outlets. Strategic communication and media relations can ensure companies’ stories are heard, understood, and remembered, thereby enhancing visibility and attracting interest. This is an essential component in boosting public awareness, which in turn, attracts investment and drives growth. In other words, good communication creates shareholder value. 

In conclusion, the pathway to going public can be challenging, but it is by no means insurmountable. The guidance and expertise provided by strategic advisory firms can pave the way for a successful IPO, opening doors to new funding sources and opportunities for growth. Companies looking to traverse this path should consider the benefits that a strategic advisory firm can offer.  While cost may be a concern, it helps to compare this to the value good communication can help create.

If you’re considering the journey to an IPO, why not explore the support that strategic advisors can offer and start turning the tide in your favor today? Harness new expertise to unlock your company’s potential and amplify your impact in the global marketplace.

Read full list of European IPOs in H1 2023

07/2023