Unmasking The IPO Market
Pandemic panic shut the IPO window with a bang in March. Amazingly though, not only did the window open again in April, but it eventually took off like a rocket. The result, a record year for biotech companies raising funds through an IPO. By 30 September, 87 IPOs had raised over $18bn compared to $11.9bn in the whole of 2019.
Almost all the action was in the US or in Asia. Europe was moribund. Of the 10 European biotech IPOs in 2020, 7 were on NASDAQ and 1 on the NYSE.
Europe is rightly concerned by the lack of depth in its capital markets and the drift of companies to the US. Efforts are being made to establish growth funds in Europe, providing pre-IPO funding and thereby hoping to stop the flow of migration to the US by our leading European companies. Other such measures are focused on the supply side. The UK is seeking to make listings more Founder-friendly by permitting dual class share structures. The plan being to allow for disproportionate voting and to reduce the minimum free float required for an IPO.
It would be a surprise if such supply-side measures had much effect. The fundamental problem is on the demand side. European markets are fragmented leading to shallow capital pools and a dearth of the sort of sophisticated specialist investors one encounters in the US and that are also emerging in Asia. A unified European Stock Exchange would be a big step in the right direction, but it’s unlikely to happen any time soon despite Euronext’s best efforts.
An interim work around would be a platform that consolidates the stock quotations from various markets, by sector, providing greater transparency, visibility and choice for investors. Europe and its investors need bigger vision, more choice and easier access if it wants to stimulate the capital flows required to halt the westward drift of its star companies.
Pandemic panic shut the IPO window with a bang in March. Amazingly though, not only did the window open again in April, but it eventually took off like a rocket. The result, a record year for biotech companies raising funds through an IPO. By 30 September, 87 IPOs had raised over $18bn compared to $11.9bn in the whole of 2019.
Almost all the action was in the US or in Asia. Europe was moribund. Of the 10 European biotech IPOs in 2020, 7 were on NASDAQ and 1 on the NYSE.
Europe is rightly concerned by the lack of depth in its capital markets and the drift of companies to the US. Efforts are being made to establish growth funds in Europe, providing pre-IPO funding and thereby hoping to stop the flow of migration to the US by our leading European companies. Other such measures are focused on the supply side. The UK is seeking to make listings more Founder-friendly by permitting dual class share structures. The plan being to allow for disproportionate voting and to reduce the minimum free float required for an IPO.
It would be a surprise if such supply-side measures had much effect. The fundamental problem is on the demand side. European markets are fragmented leading to shallow capital pools and a dearth of the sort of sophisticated specialist investors one encounters in the US and that are also emerging in Asia. A unified European Stock Exchange would be a big step in the right direction, but it’s unlikely to happen any time soon despite Euronext’s best efforts.
An interim work around would be a platform that consolidates the stock quotations from various markets, by sector, providing greater transparency, visibility and choice for investors. Europe and its investors need bigger vision, more choice and easier access if it wants to stimulate the capital flows required to halt the westward drift of its star companies.