04/03/2020 | Julian Macedo

This is our fourth annual review of market activity in Europe, where we draw out the key internal execution factors that companies should consider. We’re pleased this year to initiate commentary on M&A and high yield execution, alongside our existing ECM practice.

Equity Capital Markets

The headline numbers are positive – despite 2019 European and global market sentiment being influenced by political and financial stability issues, the Association for Financial Markets in Europe’s 2019 summary shows European ECM issuance of €116bn, only down by 6% against 2018. Total market capitalisation in the EU28 and Switzerland increased by an amazing 23%.

The detail however is less rosy. Volumes of the flagship IPO product were down by 38%, with total IPO value of €21.6bn. Follow-on offerings were stable – perhaps no surprise with markets continuing to hold all-time valuation highs.

As regular readers know, we’ve been commenting for some time on the risk of falling liquidity to primary equity markets. AFME’s summary says European equity turnover in 2019 fell 16% in € terms compared to 2018. However, taking into account the 23% increase in market capitalisation, the percentage turnover – aka velocity – dropped by one third. Turnover in 2019 was only 0.65x the market cap, while in 2018 it was 0.94x. This wasn’t just a small vs largecap issue – the € liquidity in both main markets and the generally smaller cap trading facilities fell by the same amount. To add to this, the net reduction in the number of listed companies, or as the Financial Times put it in mid 2019 the “incredible shrinking stock market”, is a concern.

Some of the reasons for this falling liquidity and attractiveness of becoming a listed company – in spite of record valuations – seem to be fairly summarised in the January 2020 report commissioned by the French stock market regulator the Autorité des Marchés Financiers. While the report considers only the French experience, it is a G8 country, with one of the largest economies in the world and one of the largest exchanges in Europe. The reasons cited include the flows out of equity funds, the dramatic fall in research coverage following MiFID II, the growth in passive management of funds, and attractive alternative financing in private markets. Aspects that are anecdotally, common complaints across Europe.

Even without this backdrop, the process of IPO execution itself risks dragging on the business performance. At a recent London Stock Exchange IPO event, one IPO CEO said his main issue with the IPO process was management distraction due to lack of capacity. He pointed out that although the company performance kept improving through the IPO execution, with hindsight they could clearly see a decline in the growth rate for the live execution period.

Management distraction during a major execution process will naturally have a greater impact on business performance during challenging trading conditions like the current coronavirus crisis, even before reflecting how market sentiment is trending. While preparing to be ready to go once sentiment improves may be an old recommendation, it is nevertheless still relevant if there is a fundamental desire to list in whichever window presents itself.

With these challenges to IPO and demerger execution, the key execution lesson we would highlight for potential new issuers is; Prepare Early, Prepare Well. We help our clients to prepare to be a listed company as well as supporting their execution of the IPO. Being a listed company means understanding how their corporate messaging, internal culture and management structures could be impacted by an IPO. Knowing what a step change this will be and investing the time to smooth out the shock will make the execution process of the transaction that much easier. It will also give your advisors on the IPO great foundations for positioning your equity story and recommending the marketing strategy to maximise valuation.

High Yield Markets

It’s perhaps no surprise that the high yield market had one of its best years. It’s one of the instruments used to provide private capital, which we mentioned above has been a highly attractive alternative to public equity. This is why we decided to add high yield transaction management to our capabilities in 2019.

White & Case’s 2019 review of high yield issuance in show Western and Southern European high yield issuance increasing 20% in 2019 to $107bn, the second highest amount behind 2017’s total of €140bn. And new issues, rather than refinancing or repricing, were 40% of 2019 issuance. One of the key features of 2019 was the increasing interest from yield-poor investment grade issuers. This drove first BB bond pricing tighter, then single B, compared to the previous year.

That interest, combined with historic low financing costs, seems to have continued to drive volumes in 2020. January saw $10bn of high yield issuance, the most in the seven year period since 2014 according to Bloomberg. However we’d note the current sentiment has pulled back, tempered in recent weeks by the coronavirus event which is impacting on both investor sentiment and company performance. New issue sentiment in bond markets can turn very quickly, perhaps even quicker than in equity markets, so an issuer wanting to access an acceptable window will be prudent and make sure their preparations are fully complete, and are ready to go at short notice.

The key lesson we’d draw from European high yield in 2019 comes from the fact that the high yield bond often precedes an exit by shareholders through M&A or IPO. In a market environment with near record issuance levels, and therefore with banks and lawyers running at full capacity, we work with our issuer clients to make sure they carefully review the documents. Firstly to ensure management and shareholders can operate the business as they would like, and secondly to give due consideration to the planned exit and avoid the need to refinance or restructure. Or as we put it in our work;  Think of the Destination, Not Just the Deal.


Mergermarket’s 2019 M&A report shows M&A volumes in Europe were significantly down. The $771bn of reported deals was down 22% on 2019 and was the lowest percentage on record of global volumes. Outbound M&A however was materially ahead, and at $272bn was 28% above the 2018 figure. Like the equity markets, M&A sentiment in Europe was impacted by political disturbance and economic fears, although it has to be noted the importance of FX rates making purchases of UK assets particularly attractive when viewed from a $ perspective.

A notable aspect was the number of public-to-private deals, often by private equity-backed bidders. While the total of $39bn deal value across 31 companies is a small proportion of M&A volumes, we’d point out that the “private equity bid” is currently a factor in the de-equitisation of stock markets.

Taking a step back, we dug deeper into the total volume numbers to understand the breakdown. Which was an interesting exercise for what it showed about the importance of the largest few deals to the mainstream advisory community, and also just how many M&A transactions were executed in the small and midcap space. The top ten European M&A transactions in 2019 were 24% – twenty four percent! – of the total values according to Mergermarket. Yet looking at number of deals, the same source shows there were 657 transactions between €100m and €1bn, compared to just 121 deals above €1bn.

The M&A key lesson we’d draw from 2019 has a similar issue to the high yield market. In an M&A environment when deal values are down by double digit percents, those transactions with the cleanest execution and highest likelihood of announcing, are likely to get the greatest support from the financial advisors. Therefore; Identify and Address the Execution Risks Up Front.

The Deal Team supports companies small, mid and large to improve the quality of their execution and their transaction outcomes. We don’t chase league tables, or megadeal fees, because we charge fixed retainers. Your €250m M&A sale is just as important a mandate to us, and gets the same Consultant resource, as a $500m bond or a £1bn IPO. With an increasingly uncertain backdrop across all markets, and if you’re planning to be one of the hundreds of transactions in the equity, debt or M&A markets, it’s prudent to make sure you’ve got the capacity to efficiently deliver what your advisory team needs so they can do their job. As always, we’re here to help.

Please note – We’ve used our judgement to select the linked external information which we believe may be of interest. We are not however responsible for the accuracy, completeness or relevance of the information and opinions contained therein.