Is Europe’s IPO process too longwinded?

By Kylie MacLellan

LONDON (BestGrowthStock) – With billions of dollars worth of European initial public offerings pulled so far this year, bankers are asking if there are too many obstacles on the route to a listing while stock markets remain choppy.

Reducing the number of banks working on a deal, shortening the process, or increasing flexibility over price are all ideas to smooth the process, a loose set of practices and customs that have evolved over time.

“As a group of practitioners we urgently need to sit down and discuss some of these things and try to work out a better way to do it,” said Sam Dean, co-head of Equity Capital Markets (ECM) at Barclays Capital. “If not, we are still going to see some very disappointing outcomes.”

Investors have had plenty to worry about this year, making them reluctant to spend cash on new companies coming to the market. In May, European stocks (.FTEU3: ) sank to their lowest level since September 2009, spooked by euro zone debt worries.

Also in May, the Chicago Board Options Exchange Volatility Index (.VIX: ) — a forecast of stock market volatility often seen as crucial in explaining the success of equity sales — reached its highest level in more than a year.

In the weeks that followed, a string of firms, such as Brazilian iron ore firm Ferrous Resources, pulled planned European listings.

With volatility set to continue into 2011, concern remains that the length of the process leaves issuers too long exposed to the risk of a turnaround in investor sentiment, and that more firms could succumb to market wobbles.


Impetus for change is higher among some banks than others however, suggesting reaching consensus among bookrunners to experiment with timing will depend on a deal’s syndicate. Some say it’s all about the quality of an offer.

“For a good company there will always be a window,” Viswas Raghavan, head of international capital markets at JPMorgan told Reuters.

A few offerings — such as that of Spanish travel reservations firm Amadeus (AMA.MC: ) — have defied rough markets which have seen windows for getting IPOs away close as quickly as they opened.

Still, in Europe, Middle East and Africa, almost 50 deals worth a total of more than $10 billion have been pulled so far in 2010, according to Barclays Capital, and many more issuers were forced to cut their offer price.

So there are plenty of ideas around to tinker with the process — something which would not require the involvement of the Financial Services Authority, as the offer structure is not legally imposed but decided by the banks and issuer.

“Some issuers are frustrated that the standard European IPO process leaves them with four weeks of market exposure from the time of announcement,” said Craig Coben, head of ECM for EMEA at Bank of America Merrill Lynch.

The standard “two plus two” timescale usually sees the publication of research and around two weeks of pre-marketing, known as investor education, take place between the launch of the offer and a roughly two-week bookbuild.

It could help to see whether the investor education stage — which isn’t part of the IPO process in the United States — could be removed without impacting the success of the offer, Coben said.

Others suggest keeping the marketing, but compressing it into a shorter period of time.


Getting investors on board before the formal launch of a deal is also likely to be increasingly favored as a way of reducing exposure. Cornerstone investors, often seen in Asia, can be particularly helpful.

“In a selective IPO environment, knowledge breeds trust. So as we bring our candidates to market, we find that these early meetings are helpful,” said Tim Harvey-Samuel, Citigroup’s head of ECM origination for EMEA.

Other ideas include reviewing the kind of updates sent out to investors on how the bookbuild is going, and a more flexible approach to adjusting price ranges.

Most also agree the increasing number of banks on deals has caused some problems for incentives and communication, highlighted by the labored IPO of Italy’s Enel Green Power (EGPW.MI: ) — which involved 10 banks.

Is Europe’s IPO process too longwinded?