2014 will be remembered by European stock exchanges as a year when markets showed a keen appetite for initial public offerings (IPOs). Industry analysts* say that such vigorous levels of activity were last seen back in 2007 - prior to the 2008 global financial meltdown. According to a Roschier panel of experts, that enthusiasm for public listings was balanced across the continent, and was also evident in the Nordics, including Sweden. While IPOs in Finland have been fewer, there is an expectation of increased deal activity in 2015.
"Last year was a very strong IPO year in Europe with large transactions in all the major markets. The same trend has been seen in Stockholm and continued during the first part of this year. In terms of deal volume last year there were almost half the number of deals in Stockholm that there were on the London Stock Exchange, so it's been a pretty remarkable development," says Antti Ihamuotila, Roschier's newly-appointed capital markets Partner.
"We saw a big change starting during the fall of 2013. Before that private equity funds had limited interest in IPOs. During the fall of 2013 this changed and dual track processes popped up quite briefly and then turned into pure IPO tracks," adds Pontus Enquist, Partner at Roschier's Stockholm office and head of its Equity Capital Markets practice.
Enquist explains that dual track processes are used to concurrently prepare a company for one of two potential exit trajectories - a sale or an IPO. He notes that pricing in the public markets had been such that the IPO track dominated most of the processes in 2014.
"We had one exception in the IPO of Apotek Hjärtat. The IPO track dominated that process; all the work had been done and the company was set to be IPO’d but at the last minute it was sold successfully to ICA Gruppen just before the IPO," Enquist explains.
Ihamuotila, who joins Roschier from the leading international law firm Latham & Watkins, points out that apart from appetite in the market, the low interest rate environment was another driver fuelling bullish IPO activity, as it has made continued equity investment relatively more attractive.
Delayed reaction in Finland
While 2014 was a dynamic year for IPOs in large European economies as well as the rest of the Nordics, activity in Finland has lagged behind the rest of the region. Paula Linna, Roschier Partner and head of the firm’s Public M&A and Equity Capital Markets practices in Helsinki, says that while transaction volumes in Finland increased in 2014 compared to a few years earlier they were still more modest than in Stockholm.
“In 2009 - 2012 there were very few listings compared to 6-9 during the last two years. But these also included new listed companies created through demergers of existing companies and certain secondary listings, so in terms of true IPOs the numbers are smaller,” she observes.
“But so far this year there have already been three new IPOs and one announced demerger resulting in the creation of a new listed company, and there are several IPOs in the pipeline. We are hoping to have a fairly active year,” Linna adds.
Ihamuotila points out that it’s not uncommon to see a delay where smaller exchanges develop traction towards the end of a period of market optimism, and when investors start to seek attractive deals and pricing beyond larger markets. From the Stockholm perspective, Swedish Partner Enquist concurs, noting that although there were still IPO processes in train towards the end of 2014, the flow appears to have normalized.
“The general sentiment is that there are IPOs in the pipeline, but perhaps not quite as many as there were six months ago. But that’s not surprising given the number that have already come to the exchange,” Enquist remarks.
Latest trends: Anchor investors and early look meetings
Aside from the general tendency towards buoyancy in the market for IPOs, Roschier’s panel of experts also pinpoints a number of specific trends in recent IPO processes. One such practice involves the use of anchor investors - typically large, high-visibility players with a great degree of credibility in the investor community - who commit to purchase an agreed number of shares in the IPO and are mentioned in the prospectus to generate interest and provide additional comfort around the valuation.
“This has been successfully used in deals very recently, for example the Eltel IPO, where we acted for the company and the main stakeholders. It’s interesting for the sellers as a way of getting more traction for the sales process, but also for the anchors because they are guaranteed a certain allocation,” explains Stockholm-based Partner Enquist.
Helsinki-based Partner Linna says she expects that once IPO activity speeds up the anchor investor concept could also be a valuable tool in the Finnish market.
“Tying in one or more reputable investors would add credibility to the case and could thus help increase interest in the deal,” Linna observes.
Helsinki Partner Ihamuotila raises the example of “early look” meetings as another trend that has emerged in larger European markets. The concept offers the listing company an opportunity to engage with investors early on and to provide them with an overview of the opportunity.
“Especially for companies in an industry or market that's not well known to investors, we have seen investors provided with a generic introduction early on. Or in a situation where there aren't many public peer companies to help the valuation process,” he explains.
Early look meetings have become a part of IPO processes in Finland and Sweden as well.
“While these meetings are useful for receiving investor feedback on the company, it is crucial to carefully consider the nature of the information provided in these meetings and to ensure the consistency of such information with the contents of the IPO prospectus to be published later on in the process,” Paula Linna adds.
Another emerging trend in Sweden in 2014 was the enhanced role of private equity sellers. Pontus Enquist says one prominent example of the increased credibility of private equity sellers with limited pre-IPO holding periods involved the IPO of food products producer Scandi Standard AB on the Stockholm exchange, in which Roschier played an advisory role.
The Roschier panel concludes that in Europe’s larger markets a great deal of the appetite for major new IPO transactions may have been spent in 2014. In Sweden too, the expectation is that IPO activity will normalize during 2015. However in Finland, the market for new IPOs may just be ripening, spurring a solid volume of listings in 2015.