The recent IPOs of private equity-backed EuroGroup Laminations and IONOS do not herald a reopening of the European IPO market, said several sources, with central banks still fighting to tackle inflation.
IPO volumes plunged in the second half of last year as central banks hiked interest rates to combat rampant price rises.
Warburg Pincus-backed German web hosting company IONOS priced its IPO in early February at €18.50, at the bottom of its €18.50-€22.50 range. That had fallen to €16.12 at time of writing.
Then came EuroGroup Laminations, an Italian producer of stators and rotors for electric motors headquartered in Milan and partly owned by Tikehau Capital. It came to list with a price range of €5-€6 and later priced at €5.50 on 8 February, for an implied market cap of €922 million.
These deals were not a sign of a comeback, according to one investment banker. “It’s dribbles. And look what happened in the markets in the last two weeks. When the economy and the macro data in the US came out stronger than expected, worldwide stocks were down and bonds were down. The last half of 2022 repeated itself in the last two weeks. It’s far from over. Central banks have signalled that they are not going to stop raising rates until the inflation genie is back in the bottle.”
EuroGroup’s book was multiple times subscribed and largely made up of long-only international investors, Roberto Quagliuolo, head of private equity Italy and co-head of Italy at Tikehau Capital, told PE Hub Europe.
But he was not sure others would receive a similar response.
“The reality is that it’s binary,” he said. “You have a story – energy transition, electrification, clean mobility. Either you are riding one of these well-identified macro trends or the market is closed. Investors don’t feel the need to take risks for stories that are not perceived as a clear pureplay.”
Eurogroup’s share price suffered in the turbulent last two weeks. It dropped to around €5.20 on the Borsa Italiana, although it has since recovered to €5.45, just shy of its issue price.
“It’s still a fragile market,” said Quagliuolo. “We are navigating through complex news, US inflation and rate increases by the ECB. We believe that the market has done a good deal and we will see this reflected in the share price performance.”
Story to tell
Tikehau, an investment firm based in Paris, took a 30 percent stake in EuroGroup in September 2020 via the T2 Transition private equity fund, launched with energy firm TotalEnergies in 2018 to target European firms working on the move to a low-carbon economy.
EuroGroup was an obvious fit. “They had the vision of betting on electric vehicles in 2015, when it was not obvious to anyone and before Tesla made visible that it was possible to sell electric vehicles in numbers and in price,” said Quagliuolo.
Tikehau was not in a rush to sell, but the company grew above even the most optimistic expectations.
EuroGroup’s revenues grew from around €300 million to approximately €850 million last year, while its EBITDA grew from €30 million to €100 million. The order backlog for its electrical vehicle and automotive segment more than tripled from €1.5 billion to €5 billion, with an additional €2.5 billion of orders under discussion.
“This order backlog requires capital to invest in new plants, new equipment and follow the increase in production capacity required,” said Quagliuolo. “So even at the time of our entrance it was largely as a capital increase.”
The IPO included a €250 million capital increase. Tikehau declined to comment on the return it had made at the IPO, but a source with knowledge of the situation said the firm made more than 3x its initial investment in less than two and a half years.
While 50 percent of the capital raised in the IPO was to fund future production, the remaining portion – around €200 million – was secondary, of which 50 percent went to Tikehau Capital to decrease the risk of its investment. “As a function of the IPO, we gave away our specific governance rights and exit protection mechanism,” said Quagliuolo. “We sold approximately 50 percent of our stake and remained invested with the remaining 50 percent.”
That left the firm holding an 8.5 percent stake. Quagliuolo and Tikehau operating partner Jean-Marc Gales will remain as board members and Tikehau does not plan to reduce its stake in the short term.
New EU emissions targets for heavy-duty vehicles from 2030 onwards, announced on 14 February, will likely further boost EuroGroup.
“In 2022, there were more or less 4 million electric vehicles sold, and one out of two was equipped with the motor core produced by EuroGroup,” said Quagliuolo. “These 4 million are expected to become 40 million in the next 10 years.”
But electric vehicles are only part of the equation. “Some 70 percent of electricity is consumed through electric engines,” said Quagliuolo. “Rotors and stators are at the core of how an electric engine works. The energy transition and the electrification of several applications will boost the remaining part of EuroGroup’s business.”