European Equity Capital Markets: Employing options to raise equity

Listed & Large Corporates, The Netherlands | Report | December 2021

Having already surpassed 2019 and 2020 levels in terms of IPO numbers and total proceeds, the European IPO market is experiencing a record-breaking year.

Overall, today's equity capital markets are characterized by high liquidity and strong valuation levels. Market sentiment has been positive on the back of government and central bank stimulus programs, record-low interest rates, vaccine rollouts and improved macroeconomic indicators, as can be read in this report.

However, investors are recently becoming more cautious as interest and inflation rates rise, and the number of COVID-19 cases in Europe is increasing again. Listed companies contemplating a follow-on issue and companies planning to list should therefore keep a close eye on the market and make sure to be ready to benefit from the market circumstances at the right time.

Multiple equity financing instruments provide listed companies the ability to issue new shares

One of the main advantages of being a listed company is the possibility to issue primary shares, for instance for balance sheet recovery or to finance organic or acquisitive growth. An important prerequisite from an investor perspective is that the use of proceeds is well defined. There are multiple equity financing instruments in this matter. Selecting the right instrument(s) (or a combination thereof) to optimally structure a transaction, among other things, depends on the intended size, timing, use of proceeds, envisaged appetite from existing shareholders and a potential preference to attract new investors.

European stock markets at all-time high levels

At the end of October, the Euro STOXX 600 and AEX were up 19.2% and 29.8% respectively. The AEX reached the 800 points level for the first time in September 2021 and continued its upward trend in October. Although investors are becoming more cautious, within the Euro STOXX 600, all industries continue to show positive 2021YTD returns driven by the overall strong market sentiment.

Economic recovery supported industries that fared poorly in 2020, such as automobiles & parts. Relative underperformers were defensive industries that are less tied into the economic recovery, such as utilities. The technology industry continues to generate significant returns, despite a small drop at the end of September 2021, which restored fairly quickly. However, the industry is vulnerable to rising interest rates and inflation.

The VSTOXX, Europe’s leading volatility index linked to the Euro STOXX 50 index, continues to gradually decrease toward pre-COVID-19 levels. That being said, the number of volatility spikes does indicate a level of uncertainty in the market.

In this report for the large and listed corporate sector, we discuss these developments, provide an update on the M&A and debt market and highlight a case study on Avantium.