After a long period of restraint, one company after another is unveiling plans for an IPO. Perfumery chain Douglas officially announced at the beginning of this week that it wants to raise 1.1 billion euros in the short term with an IPO in Frankfurt. Previously there was the American internet forum Reddit, which, according to the financial news agency Bloomberg, is counting on a valuation of $6.5 billion (about 6 billion euros) at its upcoming IPO in New York, later this month. In both cases, this was preceded by years of rumors.
The big hit this year on the Amsterdam stock exchange should come from CVC Capital Partners, Europe’s largest private equity firm. The originally British investment group, which manages 140 billion euros in assets, makes it according to sources British Sky News will soon move to Beursplein 5. The previous trade fair plans failed last autumn due to the disappointing stock market climate, but there is now talk of a valuation that could rise to more than 13 billion euros.
Other companies that are mentioned in the same breath as an IPO in 2024 are fintech companies Klarna, Plaid and Chime, transport company Flix (of the buses), chat service Discord, and clothing brand Skims from influencer Kim Kardashian. The same applies to the controversial Chinese fast-fashion chain Shein, which is preparing an IPO on Wall Street. The company is now valued at 45 billion dollars (about 41 billion euros), Bloomberg reported at the end of January.
“In Amsterdam we see a similar picture as in surrounding countries,” says René van Vlerken, head of listings at stock exchange operator Euronext Amsterdam. “Sentiment regarding new IPOs has improved and more companies appear to be preparing for an IPO. The list of possible IPOs in Amsterdam for the next twelve to eighteen months is growing steadily.”
There are several reasons why IPOs are popular again. First, inflation is cooling, faster than expected. Inflation plays a decisive role in the interest rate policy of central banks. Investors hope that inflation will drop so much that the Federal Reserve in America and the European Central Bank will start lowering their key interest rates later this year. The lower the interest rates, the more attractive investing becomes. This is because saving becomes relatively unattractive when interest rates on the money in the bank are low.
As expected, the ECB left interest rates in the euro zone unchanged on Thursday. Although ECB President Christine Lagarde hinted between the lines of upcoming interest rate cuts in the coming months, probably from June. That interest rate is still at a record high of 4 percent, which is cooling the economy (because: the higher the interest rate, the more expensive it is to buy houses or for companies to borrow money, which slows down economic activity).
Fed Chairman Jerome Powell also still expects interest rate cuts. He said told Congress this week that the US central bank is “not far” away from the point at which interest rate cuts should be possible. Although (as usual) he also played a tightrope: future reductions depend on the development of the economy, with the most important objectives being the creation of ‘maximum employment and price stability’.
Excessive influence
A second development is the hype surrounding artificial intelligence (AI). This not only pushes tech shares to great heights, but also seems to lift other funds. The listed American chipmaker Nvidia is the most striking. Nvidia has made an extraordinary price jump of almost 650 percent over the past year and a half and has overtaken one stock market favorite after another in recent weeks in terms of market value (2,300 billion dollars). Only Microsoft and Apple are at the moment worth more at the fair. Given the enormous demand for the fast AI chips that Nvidia produces for data centers, and the exceptional growth figures that the market-leading company is showing, there appears to be no end in sight to this success story.
The value of tech shares such as Nvidia has become so great that they are also pulling up the rest of the stock market. They have an increasing weight in both the American stock market index S&P 500 and baskets of world shares. This is what the market value of the ten largest American stocks is now the same size as all listed companies in the United Kingdom, France, Germany and Japan combined. The risk of this is that this makes a stock market index less effective for investors who want to diversify, as a relatively small group of shares can cause large fluctuations in stock portfolios (because if their stock price falls because, for example, interest rates rise or profits disappoint, the broader index will also fall. down). The American investment bank Goldman Sachs therefore called Nvidia last month “the most important stock on earth” because of its outsized influence on stock profits this year. In short: Nvidia is currently setting the tone, and it is very positive for the time being.
This, in combination with gradually falling inflation and the belief among many investors that interest rates will fall this year, makes alternatives such as savings and bonds increasingly less attractive. All this means that enthusiasm among investors has returned, pushing stock markets in Europe, America and Asia to record highs. On Thursday the AEX closed at more than 868 points, the highest closing price ever.
“The sentiment on the stock market has been somewhat gloomy for a long time,” says Jelte de Boer, head of investments at Optimix Vermogensbeheer. “In October there was still a dip and a possible recession was taken into account. That did not happen, and this year we see that the economic figures are improving and that inflation is moving downwards.”
De Boer calls the current circumstances for an IPO “very good”. According to him, it is not only the prices of the so-called ‘Magnificent Seven’ (Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta and Tesla) that are rising. “Also small caps [kleinere beursfondsen] and even emerging markets are going up. This, in combination with investors who have a lot of money available because they were cautious last year, makes it attractive for a company to place shares now.”
Although there is also a risk in that. The fact that stock markets worldwide are already hitting record levels could also indicate that there is a bubble that could burst soon. This is now being talked about out loud by doom thinkers, who see similarities in the rise of AI with the dotcom boom of the beginning of this century. Then countless internet companies went public and share values rose to dizzying heights, fueled by the endless possibilities that the emerging internet would offer. Until the prices collapsed rapidly in the spring of 2000 and it turned out that many of those new hyped companies were mainly running on borrowed venture capital and had failed to make a profit. Many start-ups went bankrupt, the bubble burst.
“If everyone is positive, future price developments are often disappointing,” says Corné van Zeijl, stock analyst at asset manager Actiam. “A point of concern currently remains wage increases. Major strikes, such as we are currently seeing in Germany in train traffic and at Lufthansa airline, often lead to higher wages and therefore higher inflation. Which in turn gives central banks less opportunity to lower interest rates,” because they prefer not to lower them when inflation is high.
Poor year
Nevertheless, it appears that 2024 will see more new stock market listings than in recent years. 2023 in particular was in many ways a poor year for IPOs due to high inflation and interest rate increases. Globally, 1,429 companies went public, a drop of almost 16 percent compared to the previous year, and around 40 percent of the number that made an IPO in 2021, according to research from the American financial services provider S&P Global. The low point was the fourth quarter, which saw only 285 new stock exchange listings worldwide. This made it the worst fourth quarter since 2012.
In Europe, 107 newcomers welcomed slightly more new companies last year than the year before (102). But together, with 10.2 billion euros, they raised 35 percent less money from investors than the year before (15.6 billion euros), according to Numbers from accountant PwC. The largest IPO in Europe in 2023 was that of Romanian energy producer Hidroelectrica, which raised 1.9 billion euros.
Was there nothing to celebrate at all last year? Anyway. With the British chip company ARM, listed on the American technology exchange Nasdaq since September, and the almost 250-year-old German sandal manufacturer Birkenstock (New York Stock Exchange, as of October), there were two notable names that took the plunge on the stock exchange.
Birkenstock and especially ARM are doing quite well on the stock market so far, with price increases of more than 30 percent and almost 130 percent respectively. This undoubtedly strengthens the confidence of other companies with stock market ambitions.