(BFM Bourse) – Of the 13 IPOs in the first half of the year in Paris, only Euroapi managed to post a positive performance as of June 30. Market conditions deteriorated under the effect in particular of the increase in the cost of money. But to sum up the success of an operation solely to the stock market weather would be to forget an essential element: the conditions offered to investors, including the essential valuation.
After a historic year 2021, the first half of the year was far from successful on the IPO front. The Ukrainian conflict and fears over inflation have dissuaded candidates from giving in to the sirens of the stock market. The market deteriorated under the effect of “concerns around the valuation of IPOs and the rise in inflation, the price of raw materials, interest rates in addition to monetary policies which should tighten a trend that the recent conflict in Ukraine has exacerbated,” PwC detailed in its latest IPO Watch Europe report.
The fall, both in value and in volume, is explained by a macroeconomic context that does not encourage companies to jump into the big stock market bath.
Euroapi at the top / SMAIO disappointment
Thirteen of the valiant companies that have nevertheless tried the stock market experience on the Paris Stock Exchange in the first half of the year are all markets combined. Four companies have taken their first steps on the unregulated Euronext Access market (Bonyf, Embention Sistemas Inteligentes) and its Euronext Access + variant (Medical Devices Ventures, Glass to Power). Five opted for Euronext Growth, the flagship compartment for small and mid caps (Haffner Energy, Hunyvers, SMAIO, Broadpeak and Fill Up Media). And the last four have launched on the regulated market of Euronext Paris (Aelis Pharma, Euroapi, EureKING and Lhyfe). With varying fortunes…
On February 15, Haffner Energy braved the elements to become the first company listed on Euronext Paris in 2022. In this adverse context of soaring inflation and geopolitical tensions (as of January, tensions between Russia and Ukraine weighed on the morale of the investors) the introduction of this company having developed a process of production of hydrogen allowing the capture of carbon did not fill the tank since the price was fixed at the bottom of the range between 8 and 9 ,50 euros. The CEO could nevertheless rightly declare himself “happy to see the operation succeed when all the operations that preceded us have been suspended in this tense market context where investors are adopting a much more wait-and-see position”. Haffner Energy ended the semester down 9.63% to close at 7.23 euros, a score rather better than average.
The green energy specialist was followed a few days later by Aelis Farma. The company which is developing a new generation of drugs for the treatment of brain diseases dropped up to 14% in its inaugural exchanges despite an introductory price already set at the lower limit at 14.02 euros. Aelis Pharma’s first steps on the stock market are not crowned with success with a 19.83% drop in its share price as of June 30, 2022.
In a totally different universe, motorhome dealer Hunyvers won unanimous support in March for the first IPO after the outbreak of the Ukrainian conflict. Oversubscribed almost three times, the offer was a great success. The action was even up for its first day of listing on the Paris Stock Exchange. Since then, Hunyvers has shown resilience despite the stock market context, the case being favored by the appetite of consumers for itinerant tourism since the health crisis.
SMAIO, which arrived on the stock market at the beginning of April, cannot say the same. The specialist in the treatment of pathologies of the spine shows the heaviest decline of recent arrivals on the stock market with a decline of 20.58% at the end of the 1st half. A month later, it was Euroapi’s turn to enter, but without having had to attract investors. The subsidiary specializing in active pharmaceutical ingredients was in fact split off from the rest of the assets of the pharmaceutical group Sanofi, whose shareholders automatically received Euroapi shares. Seducing analysts, the title shows the best performance of this sample with a gain of 25.42% since its IPO in early May. Still in health, the producer of biomedicines Eureking made a more discreet entry than that of Euroapi. Without a public offering there too, the placement was made with qualified investors via a SPAC, the reference price of Eureking being set at 10 euros per share.
At the end of May, another “green” hydrogen producer Lhyfe managed to overcome the bad omens to make its first steps on the stock market. The file has since declined by 8.75% over one month.
With regard to the June introductions, the price of Broadpeak, a Breton specialist in software solutions dedicated to video streaming, has not changed compared to its introductory price of 6.41 euros, while that of Fill Up Media fell by 5% over the last two days before the end of the semester.
Sorting the wheat from the chaff
Regardless of the merits of the various applicants, the most notable IPO since the beginning of the year, in terms of the size of the company, is that of Deezer. Seven years after a first failure, the Swedish competitor Spotify took its first steps on the stock market on Tuesday July 5th. With more than mixed success, the title lost up to -35% compared to its introductory price set at 8.50 euros. If for the management of Deezer, the planets were perfectly aligned, the markets themselves were not listening to the arguments of Guillaume d’Hauteville.
A year earlier, the music label Believe had experienced such a mishap. But according to the founder of the company, the culprit is obvious: in an interview granted to Maddyness, Denis Ladegaillerie put forward the explanation that “what happened on the first day of trading is simple: a hedge fund placed a big sell order on the open. This caused the price to drop and triggered the automatic sell threshold at -5, -10, -15%”. JPMorgan, as a stabilizer, had yet bought 1 million shares that day. “Bankers say that these strategies aimed at speculating on the decline in IPOs are becoming more and more regular. Unfortunately, this has happened to us. I would have preferred to see the price go up by 5 or 10%” admitted the founder of Believe. If the bankers say so…
Deezer’s IPO has therefore put a damper on an already precarious IPO dynamic. The resumption of inflation forced central banks to come down to earth by ending their ultra-accommodative monetary policies, sending interest rates to levels not seen in years, even at the risk of a recession.
In this context, retail investors will be inclined to be increasingly selective and to favor promising and resilient companies. Markets are no longer able to accept companies at business model wobbly present themselves with an unreasonable valuation.
The second semester thus presents itself in a configuration diametrically different from that of last year at the same time. The coming half-year publication season will be an excellent barometer for measuring the repercussions of inflation on the business performance of the companies concerned. The first salvo of publications of the year had somewhat set the tone for the consequences of higher raw material costs on margins. After six months of exercise and weakened visibility, it is a safe bet that companies will be forced in the coming weeks to revise their expectations downwards. On the fund side, the pockets of liquidity are dwindling with the end of the era of free money. A terrain not conducive to a runaway IPO.
However, a few cases should come out of the woods by the end of the year. The profiles of the companies that will present themselves to investors will probably be more solid files, with a proven business model that are seeking to raise funds to finance a change of scale and thus break a glass ceiling in their development.
At the time of the IPO, the company must indeed offer investors a clear vision over 3 to 5 years, recalls Nisa Benaddi, partner at EuroLand Corporate. To maximize the chances of a successful stock market story, it recalls that companies must take care to announce a clear development project on a buoyant market segment which is supported by an involved management, including the capital. “Absolutely avoid overvaluing the company, especially since this involves very, even overambitious projections” and overselling the outlook, instead keeping margin “so as to positively surprise the market”, are also the keys to a successful IPO for Nisa Benaddi. On the other hand, companies wishing only to go public to finance their operating cycle without a clear vision will be clearly ousted from the choice of investors.
The stock market remains a great way for companies to finance themselves. However, the “market conditions” – systematically called into question when the operation does not succeed – do not in themselves summarize the failure or the success of an operation. It is indeed the conditions offered to investors (requested valuation multiples) that ultimately guarantee or not the success of the project.
Sabrina Sadgui – ©2022 BFM Bourse