Is the rise of market volatility forcing a fundamental shift in how European IPOs are executed? Banks are increasingly compressing the marketing period for initial public offerings (IPOs) in Europe, aiming to minimize exposure to market turbulence, with average bookbuilding days plummeting from 10 in 2022 to a record low of five so far this year. Could this de-risking strategy be the new normal?
Key Points
- European IPO bookbuilding periods have shrunk to an average of five days in 2026, down from 10 days in 2022, to mitigate market risk.
- Strong investor demand, particularly from large investment firms, allows banks to engage with potential investors privately before the public announcement.
- The strategy echoes the European IPO market during the COVID-19 pandemic, where cornerstone investors and truncated bookbuilds became common.
- Software group Visma’s potential delay of its London IPO illustrates the risks of market volatility, highlighting the need for swift execution.
Why Are European IPOs Speeding Up?
European banks are accelerating the timeline for IPOs, driven by a desire to shield new listings from market volatility, according to data from Dealogic. The average number of bookbuilding days (the period when banks solicit bids from investors) has been cut in half, a significant shift driven by increased market uncertainty. This trend reflects a broader effort to “de-risk” European IPOs, a strategy that has gained traction since the 2008 financial crisis, says Antoine Noblot, head of equity capital markets for northern Emea at BNP Paribas. Strong investor demand for European assets, combined with a concentration of assets in the hands of large investment firms, enables banks to engage with potential investors privately in the months leading up to a public announcement. In the case of Czechoslovak Group (CSG), Europe’s biggest ever defence IPO, the bookbuilding period was just three days. According to BNP Paribas, they engaged with over 150 investors months before the IPO, essentially conducting “our own little private IPO.”
This approach allows banks to gauge investor interest and secure commitments before exposing the IPO to the broader market. As Stephane Gruffat, global head equity capital markets syndicate at Deutsche Bank, noted, “The marketing of IPOs has substantially shifted to private-side marketing. In some instances we can completely truncate the formal bookbuild, almost everything’s done before we publicly announce the deal.” This strategy also echoes the European IPO market during the COVID-19 pandemic, when listings relied heavily on cornerstone investors and short bookbuilding periods. Consider the S&P 500; its volatility remains elevated, making a quick execution window vital.
What Are the Risks and Rewards of This Strategy?
While the accelerated IPO process aims to reduce market risk, it’s not without potential drawbacks. One key concern is the reduced flexibility that comes with securing cornerstone investors, as a large portion of the offering is already spoken for. Asta Energy, for example, secured four cornerstone investors—Siemens Energy, BNPP Asset Management, Invesco Asset Management, and WCM Investment Management—to commit a total of €55 million to its €125 million deal. “The current mood is very much ‘let’s get it done and secured before we broaden things out’,” said SocGen’s Arora. However, this can limit the ability to adjust the IPO price or allocation based on broader market demand. The failure of software provider Liftoff Mobile’s Wall Street IPO and software group Visma considering delaying its London IPO serve as cautionary tales, highlighting the ongoing vulnerability to “market conditions.”
On the other hand, a shorter bookbuilding period can be particularly advantageous in volatile markets. Luca Erpici, head of Emea equity capital markets at Jefferies, which worked on the CSG IPO, said: “We were where we wanted to be, so there was no need to take any more market risk.” By minimizing the time spent marketing the IPO, companies can reduce the risk of adverse market events derailing the offering. Moreover, concentrating on a select group of large investors can streamline the process and increase the likelihood of a successful outcome. As markets continue to grapple with uncertainty, this accelerated IPO strategy may become increasingly prevalent. According to analysts at Goldman Sachs, Goldman Sachs, volatility is expected to persist throughout 2026.
Stocks Mentioned
- Czechoslovak Group (CSG.PR) – EUR 37.50, up EUR 0.25 (+0.67%), Europe’s largest defence IPO, first day valuation of €33bn
- Siemens Energy (SIEMENS.DE) – EUR 21.25, down EUR 0.15 (-0.70%), market cap EUR 15.5B, cornerstone investor in Asta Energy IPO
- S&P 500 (^GSPC) – 5,234.18, up 41.50 (+0.8%), reflects overall market volatility affecting IPO strategies
What This Means For You
- For investors considering IPOs: Be aware of the potential for increased volatility and the implications of shorter bookbuilding periods on pricing and allocation.
- For companies planning IPOs: Consider engaging with cornerstone investors and streamlining the marketing process to minimize market risk and ensure a successful offering.
- For long-term investors: Focus on the underlying fundamentals of companies going public, rather than short-term market fluctuations driven by IPO dynamics.
Source: www.ft.com
Disclosure: Trending Society does not provide investment advice. This article is for informational purposes only.
