From start-ups to scale-ups, how do we nurture tomorrow’s unicorns?
Emerging tech companies need a specific ecosystem to grow and blossom, from seed capital to Initial Public Offering (IPO) and beyond.
Following an extraordinary few years, with the IPO market peaking in 2021 at €512 billion (US$621 billion), 2022 saw global IPO volumes plunge 68%. Some of this was a result of the extraordinary rise – and fall – of the SPAC. However, macroeconomic uncertainty and the ensuing reassessment of the cost of risk, earnings and growth forecasts as Central Banks embarked on extensive and prolonged rate hike cycles, ultimately rattled global markets.
At the seventh Annual BNP Paribas IPO and Private Placement conference held in March 2023, corporate management teams heard from investors across the private and public spectrum, as they highlighted the importance of consistent investor engagement before, during and after important capital events, particularly when markets are challenging.
The 7th Annual BNP Paribas IPO and Private Placement Conference held on 15 March 2023, saw more than 120 corporate management teams gather to share experiences from recent financing rounds and IPOs, and paths to accessing larger, more varied pools of capital.
“An IPO is a means to an end, it’s not an end in itself. It’s about growth financing, managing generational change and diversification for owners. Markets are volatile, so there are always events that happen and the key thing is to understand how to manage through them. Finally, owners and managers make relatively few important decisions – where do I list, when do I go to market, how much capital do I need to raise and at what price?” says Andreas Bernstorff, Head of ECM, BNP Paribas.
❝ An IPO is a means to an end, it’s not an end in itself. It’s about growth financing, managing generational change and diversification for owners. Markets are volatile, so there are always events that happen and the key thing is to understand how to manage through them. ❞
In uncertain markets, timing and access are key
Timing an IPO in fast-moving and uncertain markets is crucial. Connectivity across the capital spectrum, harnessing both traditional and non-traditional capital pools, is paramount to the success of any financing deal. Investors at the conference described how they adopt a long-term mind-set when discussing the various funding options available and engage with management teams across the entire capital structure.
At the conference, investors described how their investment preferences had changed during the past year as they rotated out of growth companies. Sitting on high levels of cash, investors are selective, preferring value and resilient business models with strong product and market fit, and clearly defined profit and cash flow streams. High-quality assets continue to attract interest from investors, including long-term institutional, sovereign wealth funds, asset managers and family offices.
“Heading into 2023, there’s a renewed focus on asset quality – durability of growth, underlying unit economics and free cash flow generation. The question we are asking ourselves as investors is where do we have conviction that asset quality is high, the fundamental business drivers are resilient or defensive, and where can we underwrite to visible cash flows,” says a senior Portfolio Manager at a major US Hedge Fund.
Recent experience confirms that flexibility and timing optionality are crucial ingredients alongside deal size and post-deal liquidity. Securing cornerstone investors and introductions to non-traditional capital pools and strategic investors can also be key to long-term success.
“It’s not an easy process, it’s very time consuming, it’s exhausting. […] You’re spending all the time on the plumbing, and you don’t really know when it’s going to work out, the market can be quite unpredictable,” says the CFO of a company that recently staged its IPO.
Opportunities emerging in private, non-listed markets
The past years have seen pension funds and asset managers increasingly deploy capital to private markets.
“In 2021, investors were looking for great stories, with triple-digit growth, disruptive models – especially in the B2C world, high values with metrics putting 5 years forward figures. 2022 has been a total revolution. The content has replaced the good visionary talkers, strong metrics have replaced the exciting narratives, and profitability has replaced growth,” says Julien Scemama, Managing Director Private Placements Advisory, BNP Paribas.
❝ In 2021, investors were looking for great stories, with triple-digit growth, disruptive models – especially in the B2C world, high values with metrics putting 5 years forward figures. 2022 has been a total revolution. The content has replaced the good visionary talkers, strong metrics have replaced the exciting narratives, and profitability has replaced growth. ❞
With significant recent down rounds amongst high-profile unicorns and material reassessments of internal valuation levels during 2022, investors called time on private markets and managers focused on conserving funds for existing portfolio holdings. As the valuation asymmetry between private and public markets adjusts, investors looking for new investments now enjoy greater choice and increased access to previously inaccessible deals and companies. Conference attendees noted that this is particularly true for growth companies, while earlier stage companies continue to enjoy clear access at slightly smaller deal rounds.
The decision to raise capital in the public markets can be daunting: preparation is key
Success is not just the performance of the share price on the first day of trading or at the next valuation event. Consistent communication of strategic priorities – with clearly defined financial and sustainability KPIs and delivery on earnings guidance – are important metrics in building management credibility and driving longer-term share price performance.
“Well-prepared deals still get done but more than ever they require very strong differentiation in terms of story and need to be supported by the right metrics and KPIs,” says Julien Scemama, Managing Director Private Placements Advisory, BNP Paribas.
❝ Well-prepared deals still get done but more than ever they require very strong differentiation in terms of story and need to be supported by the right metrics and KPIs. ❞
The time, effort and cost of preparing a listing are extensive, with preparation phases lasting up to 18-24 months. Having the right advisors on board to support you, your management team and your board throughout the lengthy IPO readiness process is key. Once the technical aspects have been decided, the important ingredients to make a true IPO success story are:
- A compelling equity story, communicating your strategy and purpose with conviction, certainty and clarity to the right investors;
- A credible sustainability strategy, stating your priorities, the path to delivery and your chosen KPIs, while ensuring a strong data framework is in place to back it all up;
- A clear path to profitability with strong product and market fit;
- A strong financial tool box comprising a good quality forecasting model to allow you to stay on top of your numbers at all times and share sensitivity scenarios; and
- The right processes to ensure your management, supervisory board, and investor-facing teams can deliver on the various regulatory requirements associated with being a listed company.
“Start your housekeeping early. It doesn’t matter how clean your house is – there’s always going to be somebody doing diligence who will open that one cupboard. So be prepared. Because I’m a CFO I’d have to say: start modelling. […] It is the framework for how you are going to live your life over the next couple of years,” says the CFO of a public company.
ESG is an essential part of the process
With the ever-growing consensus around the importance of sustainable practices, investors increasingly take account of a company’s commitment to ESG goals. The task of gathering and providing KPIs that display this effort may seem challenging, but communicated effectively, these can prove invaluable. Presented alongside a clear and credible sustainability strategy, the equity story of a leading luxury automotive manufacturer positioned the company right at the heart of modern luxury.
“ESG for us has been an essential part of the strategy beforehand. The company moved into the electric strategy already in 2015. It was very helpful and supportive to the overall equity story in the IPO as we could label the company as modern luxury. It was crystal clear that modern luxury can only work with sustainability,” says the Head of Investor Relations at a company that recently held its IPO.
The carefully tailored offering size, pre-marketing and investor education efforts resulted in a successful minority stake sale, with more than a 60% share price surge since listing. BNP Paribas acted as Senior Bookrunner, with one third of retail demand generated in Germany.
To support corporates and investors alike to accelerate their transitions to a lower-carbon future, BNP Paribas created the Low-Carbon Transition Group of sustainable capital markets experts in October 2021.
Listing venues: choosing the right spot
Choosing between a local and an international listing is a key early decision for management teams on an IPO journey to make. While some sectors, notably those within technology, healthcare and biotech, have preferred US markets, London has long been an attractive market for international issuers. A fair and balanced regulatory regime, deeper capital pools, and greater understanding of new and innovative business models are important considerations when choosing a listing venue, particularly outside an issuer’s home market.
While the US market has been dormant so far this year, there have been signs of life in Europe: the recent IPOs of EuroGroup, a global leader in the design, production and distribution of the motor core for electric motors and generators that listed in Milan; and Ionos, an internet and enterprise software provider that listed in Frankfurt, have been an initial test for a more upbeat, albeit still fragile, European IPO market.
Both EuroGroup and Ionos saw strong demand from local investors acting as cornerstones or anchors. EuroGroup evidenced early and strong long-only support from a broad segment of continental European investors as well as a number of Sovereign Wealth Funds, seeing US institutions following. In the case of Ionos, strong demand from German and international long-only money, sector specialists and domestic retail was secured through support from key German mid-cap institutional investors.
Ranked #1 for Industry Research in Developed Europe by the Institutional Investor Survey for six consecutive years BNP Paribas Exane recently initiated coverage of Ionos and EuroGroup. BNP Paribas acted as Global Coordinator in the IPOs of EuroGroup and Ionos.
“In Germany, 500+ companies are listed, of which 10% incorporated outside Germany. We count 16 different countries. Deutsche Börse is one of the most liquid exchanges in Europe. […] What does a listing in Germany offer a company? An opportunity to be listed in the largest European economy which stands for innovation, quality and engineering genius,” says Stefan Maassen, Head of Capital Markets and Corporates, Deutsche Börse.
BNP Paribas has acted as Global Coordinator, Bookrunner and Structuring Advisor for a number of IPOs, rights issues and convertibles so far in 2023, including:
- French business services company Spie’s €400 million convertible bond
- Italian energy transition and industrials group EuroGroup’s €432 million IPO
- Germany tech company Ionos’ €450 million IPO
- Thomson Reuters’ and Blackstone’s sell-down in London Stock Exchange Group
- Listing sponsor of Actia Group to Euronext Growth Market
- Leading international systems supplier Rheinmetall’s €1 billion convertible bond offering
- German steel and technology leader Voestalpine’s €250 million convertible bond offering
Everything you ever wanted to know about IPOs but were afraid to ask
The Initial Public Offering: What are IPOs? Why do they matter? Is the pain worth the gain? Roger Barb, BNP Paribas' Head of Execution in Equity Capital Markets, shares his insights.