Equity capital market bankers have high hopes for Europe's initial public offerings this year, but tepid investor interest so far could crush their optimism as deals get shelved or ditched.
Sentiment towards IPOs has deteriorated in the past week, with Belgian chemical company Taminco withdrawing its flotation, the UK's Pets at Home opting for a trade sale rather than an IPO, and Helikos in Germany raising a below-target €200 million.
"There's a lot of work to be done to seal a deal, I don't want to be getting ahead of myself," said a London-based banker who is handling an IPO.
So far in 2010, Europe has registered three major IPOs raising a combined $3.1 billion, almost 40 per cent of last year's total volume of $7.9 billion, according to Thomson Reuters data. But it may be difficult to reach the $40 billion which bankers have said they target this year.
The weakening of appetite is partly a product of volatility across financial markets due to worries over the fiscal crisis in Greece, China's financial tightening and banking regulation changes proposed by US President Barack Obama.
IPOs are facing discrimination from investors as they are not a "must-have", said bankers.
When market risks are on the rise, fund managers are more reluctant to sell other stocks in their portfolios to invest in IPOs of companies which lack a track record.
Top aluminium firm UC Rusal got its IPO away in Hong Kong and Paris last week, but the Russian firm's shares fell heavily on their debut.
Germany's Helikos, a special purpose acquisition company set up to buy businesses, also fell short of its targeted minimum proceeds of €250 million due to a lack of investor interest.
Helikos shares dropped seven per cent in their market debut on Thursday.
Horizon Acquisition managed to close London's first IPO this year, but raised £418 million, near the bottom to an indicated range of £400 million to £500 million.
In fact, five of Europe's biggest IPOs in 2009 are now trading below their offer prices - investors in Gartmore, Cimber Sterling, Vtion Wireless Technology, Ittifak Holding and LXB Retail Properties are sitting on losses of between three and 50 per cent.
Europe's first IPO this year, UC Rusal's shares have remained 13 per cent below water, not boding well for others in the pipeline.
Taminco pulled its €400-million listing plan after two weeks of bookbuilding failed to draw enough investor demand. The firm cited unfavourable market conditions.
Investors rejected its valuation - at the low end of an indicated range of €11 to €14 per share, Taminco was valued at seven times enterprise value to forward earnings before interest, tax, depreciation and amortisation. That was a discount of between seven and 17 per cent to its peers, not big enough to lure investors.
Given the uncertainty of the public market, some IPO hopefuls have simply opted to go to the private market.
British retailer Pets at Home was bought by private equity firm Kohlberg Kravis Roberts last week at a higher-than-expected valuation of £955 million. An IPO would probably have priced it at around £800 million, bankers said.
Other IPO candidates including top German cable firm Kabel Deutschland and British fashion retailer New Look could decide to go down the route of selling themselves to trade buyers if public markets do not accord them suitable valuations.