Stock Markets

Market Flotations in Brexit Limbo

DAX Frankfurt stock exchange Brexit TV screenshot source Reuters62382926
Brexit has further depressed the mood among investment bankers, who face a decline of the number of floatations this year.
  • Why it matters

    Why it matters

    Stock market listings are a way for companies to raise new capital, and for investors to find a place to put their money in a low interest rate environment, but nerves over Brexit may well limit the number of companies that decide to float.

  • Facts

    Facts

    • The number of flotations worldwide declined in the first half of 2016, compared to the first half of 2015, by 38 percent to 437 transactions.
    • Despite the uncertainties leading up to the referendum in Great Britain, the European market for IPOs was significantly stronger than the Asian and the U.S. markets.
    • In the first six months of the year, Europe ranked first in terms of issue volume, at $19 billion, and second in terms of the number of IPOs, at 155.
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    Audio

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Great Britain’s Brexit referendum has fuelled jitters in an already weak market for initial public offerings and most market players do not expect the mood to improve until after the summer break.

“Following the Brexit decision, there is now even greater uncertainty, especially for IPO candidates with a strong focus on doing business in Great Britain,” said Martin Steinbach, head of the IPO department at management-consulting firm Ernst & Young, or EY.

However, he predicted business could pick up significantly toward the end of the year, provided there is more clarity about future conditions by then. “With a little luck, 10 to 15 IPOs in Germany are still within the realm of possibility,” he said.

Britain’s decision to exit the European bloc came as the global economy was at its weakest point since the immediate aftermath of the financial crisis. The first six months of 2016 were the weakest worldwide since the first half of 2009, immediately after the height of the financial crisis.

The number of flotations worldwide declined in the first half of 2016, compared to the first half of 2015, by 38 percent to 437 transactions, while IPO volume dropped sharply to $43 billion (€39 billion), a 61-percent decrease.

In the United States and China, in particular, significantly fewer companies chose to debut in the market.

“There has been a noticeable decline in the number of stock exchange candidates in the Internet and biotechnology sectors in the United States. This has a negative effect on the European and German market,” explained Josef Ritter, co-head of equities markets in Europe at Deutsche Bank. “Although the mood improved in the second quarter, compared to the first, many potential candidates have postponed their stock exchange plans because of the Brexit vote.”

Another Frankfurt-based analyst said larger market launches should not be expected until September or October.

A Frankfurt-based analyst said larger market launches should not be expected until September or October.

There has been some activity, including biotech company Brain which went public with a €32.5 million float and wind turbine maker Senvion which listed at €270.6 million in Germany in the first quarter. Another two companies listed in the second quarter, albeit with much smaller placement volumes: specialty chemicals maker Decheng Technology raised €2.5 million and fintech company MyBucks raised €15 million.

And it is worth remembering that despite the uncertainties leading up to the referendum in Great Britain, the European market for IPOs was significantly stronger than the Asian and the U.S. markets. In the first six months of the year, Europe ranked first in terms of issue volume, at $19 billion, and second in terms of the number of IPOs, at 155.

Mr. Steinbach said the stabilizing oil price and the relatively strong price performance of market newcomers in the current low interest-rate environment were the most important reasons for the relatively robust development in Europe.

Most bankers now believe that growing volatility mean that companies now need to react more quickly than in the past when a IPO window opens up.

 

Peter Köhler is a Handelsblatt editor in Frankfurt, reporting on banks, private equity firms, venture capital and corporate funding. To contact the author: koehler@handelsblatt.com.

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