It’s IPO’clock, European Time

By Jörg Überla, Guest Author

The successful IPO of social networking platform XING on Frankfurt stock exchange last December was like a big bang. Why? First and foremost, it was the first real Web 2.0 IPO in Germany (and among the first worldwide), which proved that the market is open towards new ideas. Secondly, backed by a group of investors led by Wellington Partners, the Hamburg-based XING team managed to go public earlier than their U.S. counterpart LinkedIn. And thirdly, it marked the close of a year when European stock exchanges overtook their U.S. competitors in the IPO business. Focused mainly around London, Paris and Frankfurt, there were more than 650 IPOs in Europe with a volume of EUR 66 billion. At the same time, the U.S. have seen “only” 224 IPOs with a volume of EUR 35 billion.

To explain the new openness of the European markets one has to consider several developments. The condition of IPO candidates, especially from the high-tech sector, has changed fundamentally since the last bubble. Today, we are seeing more mature and more international companies with more senior management teams compared to the late 90s. By the way, this is also a result of a mature private equity industry. These IPO candidates meet a truly European investment community, where national barriers no longer matter that much; its currency is the Euro, its language is English. And this European market competes with an U.S. one, which is restricted by laws like Sarbanes-Oxley. London-based AIM, in particular, keeps attracting an ever greater number of IPOs from foreign countries.

While things are improving in Europe, one thing has to be borne in mind: With regard to market capitalization or turnover, the U.S. stock exchanges continue to be the most important market in the world. According to a study by Grant Thornton, market cap of acclaimed AIM amounts to only 2 percent of NASDAQ’s. For sure, with every IPO this difference gets smaller, but it will be a very long way to go to reach equality.