Coffee, chemicals and crude fuel hopes for Europe 2020 IPO revival

London

EQUITY capital markets bankers won't be sad to close the door on a miserable 2019 in Europe. Though some of the elements that made for a volatile environment for initial public offerings (IPOs) are still in play, there is reason to hope 2020 will bring fairer weather.

Trade tensions have eased after a deal between the US and China last month, and the UK's path out of the European Union became clearer when the Conservative Party won a resounding majority in the general election. Nevertheless, slowing global growth, the abundance of cheap debt and a profusion of private capital looking for attractive assets continue to put a damper on European IPOs. The burden and cost of a public listing are less of a draw when so much alternative funding is available.

"I'm not expecting a great big rush of transactions in 2020, but there is still scope for high-quality businesses to come to market," said David Clark, an investment manager at Saracen Fund Managers. Firms will continue to list for the wider access to capital and the higher profile, while an IPO is still a viable route for private companies to test their valuations, he said.

Europe has been hit for years by de-equitisation, where public markets shrink as not enough new shares are sold to offset buybacks, mergers and take-private transactions. Yet, public markets still have an important role to play in providing much-needed liquidity, investor protections and secure trading platforms, said James Roe, ECM partner at Allen & Overy.

The drop in London listings is a "short-term impact of Brexit", and once the uncertainty lifts, it will return to more normal levels of activity, Mr Roe said. Here is a list of some of the potential 2020 IPO candidates to keep an eye on in Europe:

A listing for one of Europe's largest independent oil-and-gas exploration and production businesses has been in the works for some time. Its co-owners, German chemicals giant BASF SE and Mikhail Fridman-controlled investor LetterOne, selected advisers months ago to prepare for an IPO, and the company says it will be ready by summer 2020. Wintershall DEA could be valued at more than US$20 billion, making it one of the largest floats in the industry in Europe since Rosneft's US$11 billion offering in 2006.

Shares in Wintershall could appeal to many of the international investors who shied away from Saudi Aramco's US$25.6 billion Riyadh listing due to concerns over governance, security and a high valuation with a comparatively modest dividend policy. Wintershall could offer a strong alternative if Aramco decides to push ahead with a foreign listing in the next couple of years.

It seems like only yesterday that ChemChina closed its US$43 billion acquisition of Swiss pesticide business Syngenta, but it's now been two years since completion.

While the original goal was to re-list Syngenta in Switzerland by 2022, chief executive officer Erik Fyrwald has said the company is working with several banks to be ready for an IPO as soon as next year.

Previously listed in Zurich and New York, the firm will stick with a domestic float, while it is also considering a secondary quotation in China, Hong Kong, London or New York, the CEO said. Syngenta could well be the chemical industry's largest ever.

France's largest mobile phone provider, Orange SA, is planning an initial share sale of its Africa and Middle East unit that could kick off as soon as next year. The company is "technically ready" for the IPO and has mandated advisers, CEO Stephane Richard said Dec 4. Paris and London are under consideration for the listing venue. The unit could be worth close to 13 billion euros (S$19.4 billion).

Orange Africa isn't the only big telecommunications listing in the pipeline for next year. Deutsche Telekom AG reportedly is weighing several disposals in 2020, including a sale or IPO of T-Mobile Netherlands. With more clarity on Brexit expected this year, there could also be scope for Spain's Telefonica SA to revive a share sale for its British mobile network O2.

After a strong year in 2019 with Network International and Nexi, floats in the payments industry are set to continue this good streak into this year. One to keep an eye on is Nigeria-based Interswitch, which pushed back plans for a London listing until the first half of 2020.

Visa took a significant minority stake in the business, valuing it at US$1 billion, as the US credit-card company has become a key pre-IPO investor in the industry.

Other IPO candidates in the sector that may try their luck in 2020 include the UK's Paysafe, which could be re-listed, Italy's SIA and Swedish payments firms Qliro and Klarna, though the latter may not happen until 2021. The pipeline is full of other fintech companies, such as digital banking software provider Avaloq in Switzerland and the UK peer-to-peer lender Zopa.

One last-minute hot entry came through last month when the news broke that the billionaire Reimann family's JAB Holding is considering a 2020 IPO for its coffee business, which includes brands such as Peet's, Senseo, Pickwick, Jacobs and Douwe Egberts. The offering would raise as much as US$3.4 billion and JAB is leaning towards Amsterdam, home of Douwe Egberts, as the listing venue, the Financial Times reported.

Coffee has been one of the hottest areas for acquisitions for years, led by JAB, which has been ahead of the curve with early investments in hipster and speciality coffee brands like Caribou, Stumptown and Intelligentsia. By bringing its many brands under one roof, JAB is creating a bigger competitor for giants Nespresso and Starbucks.

Decidedly smaller than the previous entries, but no less exciting, is Sativa Group Plc's bid to list on the AIM market in January. The British CBD and medicinal cannabis company will be the first of its kind to list on the London Stock Exchange, as companies in this sector have so far been limited to fringe exchanges, generally outside of the mandates for most institutional investors.

Though recreational marijuana remains illegal in Europe, the changing attitudes and legislation about pharmaceutical use have several cannabis companies preparing for London IPOs, and bankers have been anticipating a boom in European pot listings. Still, the recent crash in North America, after initial explosive growth, may temper the enthusiasm.

Ever since the UK's vote to leave the EU in 2016, London has lost some of its allure as a listing venue. Most domestic companies have shied away from an IPO, but with Brexit uncertainty set to subside after the Conservative Party election win, companies like Rubix could tap the market.

Advent International Corp hired banks to prepare it for an IPO this year that could value the company at over £3.3 billion.

Malaysian oil company Petroliam Nasional Bhd is considering listing its South African subsidiary Engen, the country's largest fuel retailer, on the Johannesburg Stock Exchange in the first half of next year.

Funds raised from the IPO would be put towards upgrading facilities to meet more stringent regulations on pollution and to expand its network of gas stations, in order to tap the rapidly growing segment of middle-class consumers.

Switzerland-based Global Blue is a name that has swirled around the IPO pipeline for some time, but its plans for an IPO in Amsterdam have recently firmed up.

For a moment, it seemed owner Silver Lake might try to list it in December, but held off, and could well launch the transaction early on in 2020 instead. The share sale could come to US$1.1 billion at a valuation of US$4.4 billion, Reuters reported in October.

Lastly, a bit more of a speculative, but exciting, possibility - Volkswagen AG's supercar unit Lamborghini.

The German carmaker is weighing a sale or a listing for the luxury car brand. If it goes the IPO route, Lamborghini could try to ride in the slipstream of Ferrari's runaway success story. Easier said than done, though.

Aston Martin Lagonda Global Holdings Plc, the British carmaker of James Bond fame, tried to make the same comparison in its 2018 float, but the stock turned sour from the word go. BLOOMBERG