Concerns for the IPO pipeline

Eutelsat’s last-minute decision to cancel its IPO is the latest in a series of recent signs that European ECM is running into trouble. However, private equity-backed Gondola Holdings showed last week that difficult markets need not ruin a tough deal as long as the leads offer a high degree of transparency to investors.

The continued weakness of secondary equity markets and the rise in bond yields are rapidly making equities look like a less attractive asset class. Despite the strong volume of European ECM deals since the summer, there have been signs in recent weeks that the business is beginning to suffer. Paris-based satellite operator Eutelsat first slashed the size of its €1.8bn IPO and then cancelled the deal altogether.

Gondola Holdings, the owner of restaurant chains including PizzaExpress and ASK Central, was priced at the bottom of its range. Even at that level it was less than twice covered but traded up in the aftermarket and did not suffer adverse publicity.

The offer saw the company raise £135m from the issue of new stock, with private equity backers TDR Capital and Capricorn providing the 6.3m share greenshoe. Price guidance had been set wide at 320p–430p, but it was clear from early on that the deal would price at the lower end.

It was run by joint bookrunners Deutsche Bank, Merrill Lynch and Goldman Sachs, which gave detailed information on the status of the book and likely allocations to investors throughout the one-week bookbuild.

The result was pricing at 320p, which was clear from the limits in the book, with the stock going to about 30 investors. The company issued 42.2m new shares to raise its target funds and was priced at a modest 5%–8% discount to its peers. As the offer was for a UK mid-cap and there was only a one-week bookbuild, the leads focused on UK accounts. These took the vast majority of the stock but there were also notable orders from Germany, Italy and even Japan.

The aftermarket was the most surprising aspect of the deal. Considering the low level of coverage and pricing at the bottom of such a wide range some flipping might have been expected, but just 7m shares changed hands on the first day and the stock closed at 326p. Even lower volumes were seen on Friday, when the stock lost 1p to the close.