Equity market update and IPO compass
Capital Markets Team —
September 2024
Executive summary
On August 1, the Bank of England (BoE) decided to cut its 5.25% interest rate by 25 basis points (bps) to 5.00%, following a close vote among policymakers who were divided on whether inflationary pressures had eased sufficiently.
“With the tailwind of falling interest rates worldwide, further IPOs can be expected in the second half of 2024, especially from companies with a clear growth strategy and solid fundamentals.”
Ralf Pfennig Partner
and
2.4%
0.8%
$ 5.1bn
Logistics operator Lineage Inc. debuts on NASDAQ in an underwritten $5.1bn IPO (incl. greenshoe), making it the biggest in 2024 YTD. On the first day of trading, the stock opened +5 1% and closed +3.6% (25 July 24).
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Macro environment and outlook
The BoE (Bank of England) reduced its 5.25% interest rate by 25 bps to 5.00% on August 1, 2024, following a close vote among policymakers who were divided on whether inflationary pressures had eased sufficiently. The ECB (European Central Bank) may follow for a second interest rate cut this year after preliminary August inflation data out of Germany showed optimistic signs Simultaneously, the Fed (Federal Reserve System) has yet to lower interest rates, but chair Powell signaled a potential September cut in August, citing increased "downside risks" to the labor market.
The forecasts for real Gross Domestic Product (GDP) growth and Consumer Price Index (CPI) inflation for the remainder of 2024, particularly in the Eurozone, suggest some economic relief However, the current HCOB1 Purchasing Managers' Index (PMI) presents a contrasting view with recent survey data suggesting a potential economic contraction as levels remain near 45 (August: 45.6), below the 50-point expansion threshold.
Additionally, the Economic Sentiment Indicator (ESI) remains below the optimism mark at 100, despite a slight rise from 96.5 in July to 96.9 in August. Meanwhile, the Consumer Confidence Index (CCI), which has been rising since the start of the year, experienced a small decline, shifting from -12.2 in the previous month to -12.3 in August, suggesting a more restrained consumer spending pattern.
Equity market overview
In August, discussions focused on the upcoming US presidential race, with Joe Biden deciding against running for re-election and Kamala Harris officially becoming the Democratic candidate for president at the end of August. Following her nomination, Harris’ proposed policy, focused on making essentials more affordable through middle-class tax relief and tackling price gouging, has garnered some prominent Wall Street support, contrasting with Trump's tariff strategies.
Meanwhile, the Bank of Japan’s interest rate increase to 0 25% and the resulting surge in the Yen contributed to a significant increase in the VIX (CBOE Volatility Index) at the start of August. The following increased volatility forced many hedge funds and investors to unwind carry trades, borrowing cheaply in Japanese Yen to invest elsewhere, thereby exacerbating declines in global equity markets. For instance, the NIKKEI (Japan’s leading index) lost -12.4% on August 5.
In late August, Nvidia’s shares fell 6% despite a record quarter, undershooting high expectations. The decline underscores a shift in investor focus away from Big Tech, which, despite strong growth, is failing to propel the markets Investors are increasingly favoring sectors like real estate, utilities, and healthcare, indicating a move away from tech dominance.
The STOXX Europe 600 surged by 2 7% in August, with Media and Financial Services sectors outperforming the index by an impressive 28% over the past year. This performance surge is largely driven by a market shift away from large technology companies, coupled with a climate of decreasing interest rates.
Amid rising volatility and an uncertain market environment, Germany's DAX index saw a record high of 18,913 in late August after significant losses at the start of the month.
S&P & VIX: Market trends and volatilityLTM
Performance of selected equity indices
Source: FactSet, Refinitv
Source: FactSet. Closing prices as of August 29, 2024
STOXX Europe sector performance LTM
Source: FactSet. Closing prices as of August 29, 2024.
Issuance activity
Europe had a remarkably strong first half of the year, emerging as the leading global market for IPO activity. The region saw a significant increase in both the number and value of deals compared to the first half of 2023. Notably, several major public offerings originated in Europe, reflecting a robust and active market.
Recent trends show that a significant number of IPOs involve targets previously held by strategic investors who have opted to use the IPO as an exit strategy. This approach has become increasingly common, reflecting a broader shift in how investors are capitalizing on their investments.
Additionally, the dual-track approach, where companies pursue both an IPO and a potential sale simultaneously, is frequently observed. A notable example of this strategy is Flix, where the company kept both options open before making a final decision. This dual-track method allows companies to maximize their value by exploring multiple avenues for exit.
On 25 July 2024, Logistics operator Lineage Inc., a temperature-controlled warehouse real-estate investment trust, or REIT, debuted in an underwritten $5.1bn (incl. greenshoe) IPO on NASDAQ, making it the biggest offering YTD.
The IPO was priced at $78 per share, landing at the higher end of the $70 to $82 range On the first day of trading, the stock opened +5 1% and closed +3.6%.
Source: Dealogic.
Source: Dealogic, Refinitv KPMG, Germany.2024
Source: Dealogic.
Estimated IPO outlook by GICS sectors
The expected post-pandemic rebound continues to drive market dynamics, with growing investor interest in sustainable and technology-focused companies. Investors are increasingly looking for firms with solid financial metrics and clear growth potential, while start-ups are typically seen as a secondary focus.
Despite the promising Lineage transaction, IPO activity is expected to slow down in August, with more activity anticipated in September and October, ahead of potential volatility due to the US presidential election. In the meantime, follow-on offerings and secondary sales may become more prominent, according to reports.
Still, there remains strong interest in U.S. listings due to the access to larger, more liquid capital markets, the potential for higher valuations, particularly in tech and biotech sectors, and the enhanced international profile. Notable companies like Northern Data are aiming for multi-billion-dollar U.S. IPOs, reflecting this trend, as are Raisin, Illy, Shein, and TikTok, for example.
The US & European IPO pipelines for 2024 and 2025 includes sizeable, potential IPO candidates headquartered in continental Europe and the US. Of the 69 companies considered, the majority (61%) fall under the GICS 1 sectors of Consumer Cyclicals, Information Technology, and Financials providing insight into the emerging market landscape and investment opportunities in the region.
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Source: KPMG, Germany 2024.
Note: 1) See slide 7 for sector definitions.
Source: KPMG, Germany 2024.
US & European IPO pipeline by sector (estimated listings in 2024-2025)
Appendix - Definitions
Definitons and methodologies of referenced survey data indices
Purchasing Managers’ Index (PMI)
The Purchasing Managers' Index (PMI) is an economic indicator that measures the health of the manufacturing and services sectors through surveys of purchasing managers, focusing on factors like new orders, production, and employment. The PMI ranges from 0 to 100, with a value above 50 indicating expansion and below 50 indicating contraction. To calculate the PMI in the Eurozone (Germany, France, Italy, Spain, the Netherlands, Austria, Ireland, Greece) Hamburg Commercial Bank (HCOB) and S&P Global have collaborated. The PMI is based on a representative sample of around 5.000 industrial and service companies.
Economic Sentiment Index (ESI)
The Economic Sentiment Indicator (ESI) reflects overall economic confidence, particularly in the European Union, based on surveys of various sectors such as industry, services, and households Expressed as an index with a long-term average of 100, an ESI above 100 indicates optimism and stronger confidence, while a value below 100 suggests pessimism and weaker confidence. The ESI helps gauge economic trends and outlooks.
Consumer Confidence Index (CCI)
The Consumer Confidence Index (CCI) measures how optimistic or pessimistic consumers are about the overall economy, based on their perceptions of current and future economic conditions A higher index value indicates greater consumer confidence, while a lower value signals decreased confidence. It’s used as an economic indicator to gauge consumer spending behavior. Values above zero percent indicating positive views of the economy, values below zero percent indicating negative views, and zero reflecting an equal balance of positive and negative views.
Source: European Commission, S&P Global, MSCI.
Sector definition
The Global Industry Classification Standard (GICS)
The Global Industry Classification Standard (GICS) categorizes companies into distinct sectors and industries based on their primary business activities It includes 11 sectors, which are further divided into industry groups, industries and sub-industries.
Ralf Pfennig Partner Head of Deal & Capital Markets Services
T +49 221 2073 5801
M +49 173 576 4695
ralfpfennig@kpmg.com
Till Karrer Partner Head of Debt Advisory
T +49 69 9587 4607
M +49 160 97891143 tkarrer@kpmg.com
Susanne Gatzweiler
Senior Managerin
T +49 221 2073 1159
M +49 151 567 49271
sgatzweiler@kpmg.com
Amin Qazi Manager
T +49 69 9587 2395
M +49 160 948 36734 aminqazi1@kpmg.com
Philip Evermann
T +49 69 9587 0
M +49 151 414 06208 pevermann@kpmg.com
Legal notice:
Author: Ralf Pfennig
Partner, Head of Deal & Capital Markets Services
T +49 221 2073 5801 ralfpfennig@kpmg.com
Publisher: KPMG AG Wirtschaftsprüfungsgesellschaft 50674 Cologne Germany
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