Europe's IPO Winter Goes from Bad to Worse

If it were another week, another year, the Italian luxury yacht maker Ferretti SpA would have been popping out the champagne on Monday to celebrate a 1 billion-euro listing in Milan. But last week, with just a few days to go before its anticipated debut on an Italian exchange, Ferretti was forced to cancel everything.

The culprit? Weak demand.

It’s hardly alone. Global investors have been souring of late on IPOs. WeWork has become the poster child for unicorns with questionable business prospects. After the shared-officespace venture was forced to dial back its fund-raising ambitions under the rigorous scrutiny of the public markets, one analyst called the event the “end of the cheap money era.”

In Europe, the problem runs deeper. Take Ferretti. By most measures, the company looks like the prime IPO candidate: strong brand name, zero debt, decades of operating history, a deep bench of foreign investors and a storied pedigree (the Ferrari family). It’s problem: there’s simply no market.

“Ferretti Group decided not to continue its IPO path in such market conditions, as the price investors were willing to pay did not properly reflect Ferretti Group’s value,” the company said in a statement.

Ferretti’s IPO pullback—and decision to stay out of the public markets for now—reflects what’s happening more broadly across the continent this year.

The eurozone’s IPO activity has dropped more than 50 percent from 2018 levels when 154 issues raised nearly $34.7 billion. So far this year, those numbers have fallen by nearly half—just 78 offerings with slightly under $17 billion in total proceeds—according to data from global law firm Baker McKenzie.

Brexit batters Europe

Geopolitical tensions, trade wars and anaemic economic growth, have significantly tempered investors’ appetites in Europe for new listings more so even than in other markets.

“Brexit, which doesn’t seem to be able to come to a conclusion, has dampened activity in the U.K., but also on the continent we have seen less activity than what was expected,” said Baker McKenzie’s Global Chair of the Capital Markets Practice Koen Vanhaerents in a video interview accompanying the firm’s October 2019 “Global Transactions Forecast 2020: Powering Through the Downturn” report.

There have been only a few eye-catching European IPOs this year, including the Italian payment service company Nexi SpA, which went public in April raising $2.3 billion (the sum total raised by all Italian IPOs is $3.1 billion this year) and German software maker TeamViewer’s $2.2 billion IPO in September. According to PwC’s Global IPO Watch Q3 2019, TeamViewer’s was the bloc’s largest IPO of the third quarter. Like Baker McKenzie, PwC holds a dismal outlook on the European IPO market.

Europe’s entrepreneurs aren’t just dealing with an historically weak IPO market. Small and mid-sized enterprises around Europe view the weaker macroeconomic outlook as “an impediment to the availability of external finance,” according to the European Central Bank survey on the access to finance from earlier this year. About the only good news: even if late-stage funding is drying up, in certain markets—Spain, Ireland and Portugal, at least—banks have begun to lend again.

Spain’s IPO standstill

Keep looking around Europe, and Spain’s IPO standstill may be the most unsettling.

This year, not a single Spanish company is expected to go public, La Vanguardia, a Spanish newspaper, recently reported. That would make the first year since 2012—when the sovereign debt crisis was at its peak— that there wasn’t a single Spanish listing. And that’s for an economy expected to grow at a decent 2 percent this year, better than neighboring France, Italy or Germany.

To be sure, Spain’s political unrest has put the brakes on IPOs.

“The lack of government in Spain and the political instability is not helping, and investors are likely to wait until the results of the coming election on November, 10. Companies typically hold off plans to go public prior to elections as valuations may suffer as a result of political uncertainties,” Enrique Carratero, corporate and capital markets partner at Baker McKenzie, told Fortune.

Case in point: 4,000 companies have relocated their headquarters out of Catalonia, one of Spain’s economic engines, since a banned 2017 referendum bid for independence fell apart, Spain’s acting Economy Minister Nadia Calvino said last month.

Carratero, for one, remains optimistic. He believes 2020 will be a bounce-back year for IPOs in Spain. And, he notes, that private merger and acquisition transactions may be an IPO alternative for some companies.

One way to look at it—next year couldn’t be any worse. Could it?