The landscape of IPOs in Europe appears to be facing unprecedented challenges, a situation that some analysts are dubbing the worst since the global financial crisis.

Recent statistics released by the Association for Financial Markets in Europe (AFME) on August 2 reveal a stark reality: only 34 companies went public in Europe during the first half of this year, marking the lowest number since 2009. The amount raised through IPOs during the same period hit just €2.4 billion, a staggering 42% drop from last year, which is the lowest it has been in 14 years.

Richard Spilsbury, a partner at PwC's UK Capital Markets, has bluntly stated that "IPO activity is remarkably lacking."

Various media reports indicate that surging interest rates and record-high inflation have compelled numerous companies to put their IPO plans on hold. On the other hand, the allure of the U.S. market has been intensifying, with American exchanges providing greater funding opportunities.

Declining Enthusiasm for IPOs

The binge of declining IPO numbers and diminished capital raises has engendered anxiety within the European markets. In response, policymakers in Europe are stepping up their efforts to enact reforms: the UK is gearing up to initiate several measures aimed at channeling funds toward high-growth businesses, while the EU is working to simplify listing processes across the continent and enhance the visibility of small enterprises among investors. For those few companies that have successfully gone public, a mere handful have managed to sustain an initial surge in stock prices and stabilize post-listing trading. Spilsbury argues that the overall performance of recently listed companies has been “quite dismal,” which has deterred fund managers from participating in new offerings.

A recent analysis by Reuters Breakingviews of ten large-cap stocks revealed that half are trading below their IPO levels. On average, these companies have seen a mere 3% increase since their public debuts, whereas the European STOXX 600 index recorded an almost 10% uptick by the end of July. In stark contrast, the meager returns seen by IPOs highlight their growing inadequacies.

In terms of specific stocks, London's most significant IPO of the year so far was that of financial technology firm CAB Payments, which raised around £300 million when it went public in July, only to see its stock price decline nearly 10% on its opening day.

Some European firms have attempted to identify the opportune moment to list but ultimately found themselves canceling or postponing their plans. Italian software company Maggioli SpA and its shareholder Pacri Srl recently scrapped their IPO plans in Milan, citing unfavorable market conditions that failed to yield "satisfactory valuations." Similarly, German battery supplier Intilion chose to delay its listing in July, expressing that the current market climate precluded it from securing an "appropriate" valuation. Distressingly, Turkish mineral producer WE Soda cancelled its planned IPO in London earlier in June, with CEO Alasdair Warren expressing disappointment over the low valuation offered by investors.

Given these trends, outlooks for the European IPO market remain grim; a near-freeze in activity is anticipated to persist for some time. Market analysts predict that throughout the remainder of this year, several price-sensitive merger and acquisition funds will hold off on launching sizable European listings.

For instance, Swedish private equity firm EQT has reportedly planned a private placement for Swiss skincare company Galderma, providing the latter with additional time towards its long-anticipated IPO. This company is believed to have an estimated valuation exceeding $20 billion.

Additionally, Schott AG, a German glass manufacturer, is preparing for its medical glass segment, Schott Pharma, to go public in Frankfurt after the summer. Meanwhile, defense contractor Renk intends to go public by the end of the year, conditional upon the exclusion of private sale options by its private equity owner, Triton.

Bank of America asserts that Europe may need additional time before witnessing another wave of IPOs. James Palmer, the managing director overseeing equity capital markets in Europe, the Middle East and Africa, highlights that historical trends show that slumps in IPO activity can last up to two years before recovery ensues. “It seems that history is repeating itself,” he notes.

Palmer further states, “The recovery will be gradual rather than a wave of trades. Overall index performance appears robust; however, beneath that veneer lies a complex picture for individual stocks.”

Shifting Focus to America

With the European market struggling to retain high-growth enterprises, many are redirecting their eyes towards the U.S. For these firms, the American market boasts a larger pool of capital and investors willing to take on risks to fund new ventures. Dealogic has indicated that the slowdown facing the U.S. public market has been significantly milder this year, with 75 companies going public in the first half, corresponding to $11.5 billion, which is the lowest number and value since 2015.

High-profile firms, including semiconductor manufacturer ARM, have opted for U.S. public offerings over local listings this year.

ARM, backed by SoftBank and headquartered in Cambridge, UK, is reportedly planning to launch an IPO on Nasdaq in September, potentially achieving a valuation between $60 billion and $70 billion. Riding the wave of interest generated by artificial intelligence, it’s expected to become one of the most significant IPOs in the U.S. market in the past two years.

Meanwhile, globally recognized mining company AngloGold Ashanti announced in May that it plans to shift its primary listing to New York, while retaining Johannesburg and Ghana as secondary locations.

CEO Alberto Calderon remarked that making New York its main listing venue opens up “the world's largest capital market and pool of gold investors,” with fears that a London listing might impair stock liquidity.

Historically, the London market has been the traditional haven for many large mining companies, yet this shift signifies a waning allure for London and a rising attraction towards Wall Street.

Additionally, companies already listed on European exchanges are contemplating making the leap across the Atlantic. For instance, Irish building materials company CRH has plans to switch its primary listing to the U.S., withdrawing from the Dublin Euronext exchange while maintaining its presence on the London Stock Exchange. This transition is expected to take effect on September 25.

CRH anticipates that such a move will enhance its business, offering more commercial, operational, and acquisition opportunities, ultimately resulting in higher profitability and dividends for shareholders, given that approximately three-quarters of its revenue is generated from the North American market, which is seen as a key growth driver going forward.

Moreover, early this year, executives from energy giant Shell revealed they considered relocating their headquarters to the U.S.

“Some European companies are increasingly inclined to list overseas since the U.S. market offers better liquidity. Structurally, the U.S. capital market is more appealing for venture capital,” suggested Julio Suarez, research director at AFME.

Gary Simmons, managing director at AFME, added that European exchanges are “increasingly evidently” losing ground to their American counterparts.