IPOs are back, baby (and not just in the US)

• Swiss skincare firm Galderma had a pretty stock market debut in Zurich just last week, smoothing out the wrinkles around Europe’s IPO market after a listing from German retailer Douglas fell flat.

• Galderma’s warm reception has given the market a lift, suggesting that newly floated firms might again be greeted with glowing investor demand. And that’s particularly promising in Europe, where billions of dollars worth of companies are lining up to go public.

• Consultants at Bain and Co. estimate that private equity firms are sitting on a staggering $3.2 trillion in unsold assets, some of which may soon come to market as IPOs.

IPOs are starting to look like a real thing again – and not just in the US. Last week, Swiss skincare company Galderma made its fresh-faced debut – smoothing out some market wrinkles. The maker of cosmetic fillers and medical creams rose as much as 18% on Friday, suggesting that newly floated firms might again be greeted with glowing investor demand – a promising sign in Europe, where billions of dollars worth of companies are lining up to go public.

Why all the buzz about Galderma?

It was a thing of beauty, market-wise. Galderma made its long-awaited public debut in Zurich on Friday – Europe’s biggest IPO since Porsche in September 2022 – with its shares soaring above its initial price within hours.That steadied a lot of nerves about investor appetite for new shares in Europe, a day after German retailer Douglas made a poorly received debut, tumbling more than 12% on day one.The debuts of Douglas and Galderma – both had been private equity-owned firms – had attracted tons of market attention before their big listing days. It just seemed like a pivotal moment for the long-slumbering IPO market, one that could go either way. (And did.)CVC-owned Douglas raised €850 million ($920 million) to pay off debt. The shares were priced at €26, the bottom of an indicated price range, and traded as low as €22.70.EQT-backed Galderma raised around 2 billion Swiss francs ($2.23 billion), with its shares opening at 61 francs on the SIX Swiss Exchange, up 15% from the IPO’s final price of 53 francs per share, which was at the top end of its indicated price range.But Europe had already seen some debut success this year. Tank gear manufacturer Renk, the first newcomer to the Frankfurt Stock Exchange this year, has almost doubled its issue price of €15 ($16) since debuting in February. In fact, Renk’s success prompted Douglas and Galderma to accelerate their IPOs, in hopes of tapping into that positive vibe.Galderma’s success could inspire other firms to do the same, even if Douglas’s chilly reception may be a drag for some IPO candidates.

So, there’s likely to be more stock debuts then?

Sure. And, look, it’s not likely to be a full-steam-ahead, anything-goes type of IPO environment. But you can expect to see more companies coming to market. After all, this year’s debuts – both in Europe and the US – show a growing appetite among investors.With mergers and acquisitions volumes recently hitting decade lows, a ton of pressure has built on buyout funds to sell off companies, return money to investors, and deploy freshly raised cash.Consultants at Bain and Co. estimate that private equity firms are sitting on a staggering $3.2 trillion in unsold assets – and that’s restricting the flow of money that otherwise would be going back to investors, while also having a chilling effect on their ability to fundraise.But with central banks signaling an end to interest rate hikes, the stock market is offering an attractive – and welcoming – exit route.Last week in the US, two tech darlings –Reddit and Astera Labs – made splashy stock market debuts of their own, with investor enthusiasm sending their shares soaring. Astera got the ball rolling, soaring from its starting price of $36 to $70 in its first three sessions. Then Reddit rallied 48% on Thursday alone – the stock’s first day – after entering the market at the top of its proposed range.

What’s the opportunity here?

It’ll be worth keeping an eye out for the next debuts. Private equity firm Permira has been preparing an IPO for Italian luxury brand Golden Goose – known for its tatty-looking sneakers – sometime in the next three months.And Apollo-backed lender OLB Bank has also said it is preparing to go public. Fuel card provider DKV Mobility – like Douglas, it’s one from CVC’s portfolio – is also waiting to come back after postponing its IPO plans last year. And CVC itself is expected to come to the market with an IPO worth more than €1 billion, potentially just after the Easter holiday.And if you want to take a broader bet on future IPO success, there are ETFs that let you do that. They essentially invest in companies that have recently gone public. The Renaissance International IPO ETF (ticker: IPOS; expense ratio: 0.6%) invests in newly listed non-US IPOs and tracks the returns of the Renaissance International IPO index. For a US bent, you could go for the First Trust US Equity Opportunities ETF (FPX; 0.58%), which invests in the IPOX-100 US Index, a collection of the 100 biggest US IPOs.

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