The European Initial Public Offering (IPO) landscape is currently facing unprecedented challenges, a situation reminiscent of the turmoil that followed the global financial crisis.

According to recent data released by the Association for Financial Markets in Europe (AFME), only 34 companies managed to go public in Europe in the first half of this year, marking the lowest figure since 2009. During the same period, the funds raised via IPOs plummeted to €2.4 billion, a staggering 42% decrease year-on-year, which also represents a 14-year low.

Richard Spilsbury, a partner in the UK capital markets division of PwC, has candidly remarked, “There is a notable lack of IPO activity.”

The prevailing concerns stem from rising interest rates paired with historically high inflation, compelling numerous companies to shelve their IPO plans indefinitely

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In contrast, the appeal of the U.Smarket for European firms has been on the rise, promising better funding opportunities.

Dwindling IPO Enthusiasm

The significant drop in both the number of IPOs and the amount of capital raised has created a climate of anxiety within the European marketTo tackle these challenges, policymakers across Europe are beginning to push for reforms: the UK is contemplating various measures to steer capital towards high-growth enterprises; similarly, the EU aims to simplify listing processes within its borders while enhancing awareness of small businesses among investors.

Among those that have managed successful IPOs, only a fraction have benefited from underwriters' efforts leading to significant first-day increases or stable after-hours trading

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Spilsbury explains that the stock performance of recently listed companies has been “generally quite poor,” deterring some fund managers from engaging further in new offerings.

A report by Reuters Breakingviews analyzed ten larger publicly traded stocks, revealing that half were trading below their IPO priceSince listing, these companies have seen an average increase of just 3%, while the European STOXX 600 index had nearly a 10% rise by the end of July, highlighting the disconcertingly low returns post-IPO.

The standout in London's IPO market this year has been CAB Payments, a fintech company, which raised approximately £300 million in July, only to see its stock price plummet nearly 10% on its first trading day.

Additionally, several European firms that tried to pinpoint an optimal listing time ultimately had to cancel or postpone plans.

For instance, Italian software company Maggioli SpA and its stakeholder Pacri Srl canceled their IPO plans in Milan last month, citing unsatisfactory valuations due to adverse market conditions; German storage supplier Intilion also deferred its IPO in July for similar valuation concerns; and in mid-June, Turkish fly ash producer WE Soda pulled the plug on its London IPO after its CEO Alasdair Warren expressed disappointment over the low valuations offered by investors.

Looking ahead, the bleak atmosphere of the European IPO market is anticipated to persist

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Bankers predict that in the remaining months of this year, many price-sensitive private equity funds will postpone the listings of substantial European enterprises.

For example, Swedish private equity firm EQT recently planned to conduct a private placement for Swiss skincare company Galderma, extending greater leeway for its long-anticipated IPO, with current valuations possibly reaching over $20 billion.

Additionally, Schott AG, a German glass manufacturer, has its medical glass division Schott Pharma preparing for an IPO in Frankfurt after this summer; while defense contractor Renk plans to go public before year-end, contingent on its private equity owner Triton foregoing private sale options.

Bank of America has opined that Europe may require more time before any resurgence in the IPO market emerges

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James Palmer, head of equity capital markets for EMEA at the bank, noted that historical patterns suggest that periods of stagnation could last up to two years before any revival happens“It seems history is repeating itself,” he said.

Palmer further indicated, “This will be a gradual recovery rather than a flurry of transactionsWhile indices are performing well as a whole, many stocks have more convoluted individual performances beneath the surface.”

Turning Toward the U.S.

Owing to the difficulties in retaining high-growth businesses in Europe, numerous entities are looking across the Atlantic at the American market

For many, the U.Soffers a considerably larger pool of capital, and investors here are perceived as more willing to take risks when funding new ventures.

Dealogic data suggests that the slowdown affecting the U.SIPO market this year has been far milder, with 75 companies becoming publicly listed in the first half, raising $11.5 billion, marking the lowest number and value since 2015.

Notable firms, including chipmaker ARM, have opted to list in the U.Srather than their local markets.

ARM, backed by SoftBank Group and based in Cambridge, UK, is reportedly on track to launch its initial public offering (IPO) in September on NASDAQ, with a target valuation between $60 billion and $70 billion, buoyed by the surge in artificial intelligence

This IPO is expected to be among the largest in the past two years in the U.Smarket.

Additionally, AngloGold Ashanti, the world’s fourth-largest mining company, announced in May its intention to shift its primary listing to New York, while maintaining secondary listings in Johannesburg and Ghana.

CEO Alberto Calderon indicated that transitioning to a principal listing in New York would enhance the company's access to “the world’s largest capital market and gold investor pool,” suggesting that a London listing could undermine stock liquidity.

Historically, the London market has been a traditional listing locale for numerous major mining companies, yet this trend signifies a decline in its allure, as Wall Street's appeal continues to strengthen.

Moreover, firms already traded on European exchanges are weighing the option to turn their sights to the United States.

CRH, an Irish construction materials company, is evaluating a change in its primary listing to the U.S

while delisting from the Dublin Euronext, although it intends to retain its listing on the London Stock ExchangeThis shift is expected to be effective from September 25.

CRH has reported that nearly three-quarters of its revenue is derived from the North American market, which is pivotal for its future growthThe company believes that this transition will unlock more commercial, operational, and acquisition opportunities, delivering enhanced profitability and dividends to shareholders.

Additionally, Shell’s executives suggested earlier this year that they had contemplated relocating their headquarters to the U.S.

According to Julio Suarez, research director at AFME, “Some European companies prefer to list abroad due to better liquidity in the U.S