"An equity primary market moving at two speeds"

European equity markets are going through a period of notable strength. Following the gains recorded in recent months, the main indices remain close to record highs and activity in the capital markets continues to be strong. In the primary market, however, that strength is playing out very differently depending on the type of transaction. Accelerated share placements, or accelerated bookbuilds (ABBs), have seen particularly strong activity, with the market able to absorb large transactions in a matter of hours. IPO activity, by contrast, remains relatively limited, with investors showing far greater selectivity towards new issuers.

That contrast raises an interesting question: how can the market absorb hundreds of millions of euros in a company’s shares in just a few hours, yet need weeks or months to build sufficient demand for an IPO?

Part of the answer lies precisely in the different risk profiles of the two transactions. An IPO requires investors to make a decision with more unknowns and fewer established reference points, increasing uncertainty and, with it, perceived risk. Some investors may be structurally more cautious about these types of transactions; others will be willing to take on that risk, but will require greater conviction or a valuation that adequately compensates them for doing so. The key, therefore, is to understand where that additional uncertainty comes from.

With an already-listed company, much of that work has already been done. There is an observable share price, a trading history, published results, analyst coverage and clear references on the stock’s liquidity. The market knows the company’s strategy, has had the opportunity to assess its management team over time and has a common information base from which to form a view. That does not mean participating in an ABB is an automatic decision. Investors still need to consider the discount offered, the size of the transaction, potential pressure on the share price and their own expectations for the company. But all of these decisions are made around a reference point that already exists.

In an IPO, the starting point is very different. Investors have to build an assessment of the business, its competitive position, management team and financial outlook almost from scratch. They need to understand the equity story, determine which listed companies provide the right comparables and decide what valuation they are willing to pay. On top of that, they have to anticipate factors they cannot yet observe: how liquid the stock will be, how the shareholder base will evolve or how the company may perform once it starts trading.

That difference helps explain the two speeds we are currently seeing in the market. The same investor may commit capital very quickly to a placement in a company they know well, while at the same time requiring much more analysis, engagement with the management team and in-depth price discovery before participating in a new IPO.

That is why it is becoming less useful to describe the IPO market simply as “open” or “closed”. Strong activity in block trades and post-IPO transactions shows that there is capital willing to gain exposure to equities. What changes is the level of conviction required to mobilise it. And that distinction offers an encouraging perspective for companies considering a future IPO.

“Strong activity in block trades and post-IPO transactions shows that there is capital willing to gain exposure to equities”

If a significant part of the difference between an ABB and an IPO lies in familiarity and the information available, preparing a potential issuer is, to a large extent, about reducing in advance the number of questions the market will need to answer during the transaction.

That requires more than simply preparing the process as the IPO date approaches. A clear and credible equity story, a financial track record that provides a clear understanding of the business’s development, relevant and consistent KPIs, a management team prepared to articulate the strategy and valuation expectations aligned with the market all help build that confidence. The shareholder structure, the size of the free float and the ability to generate sufficient liquidity once trading begins also matter.

It is not about eliminating uncertainty. No issuer can do that. It is about distinguishing between the uncertainty inherent in any investment and that which can be mitigated through preparation, information, and time.

“It is about distinguishing between the uncertainty inherent in any investment and that which can be mitigated through preparation, information, and time”

Ultimately, this is perhaps the best explanation for the current two-speed primary equity market. When investors are familiar with the asset and have a valuation benchmark, capital can be deployed extraordinarily quickly. When faced with a new company, they first need to build that reference point and that conviction.

For a company contemplating an IPO, the takeaway is not that it should wait for a hypothetical perfect market "window" to open. Rather, it is that a significant part of the work required to capitalize on that window when it does appear can (and should) be done well in advance.