BREAKINGVIEWS-Cut-price IPOs will be the new normal

By Karen Kwok

LONDON, Sept 17 (Reuters Breakingviews) - Klarna KLAR.N and security firm Verisure are among groups leading a revival in new listings. Yet the Swedish fintech's 40% discount to rivals reflects still wary investors. With buyout shops queuing up to float companies, sellers will have to get used to bargain prices.

Geopolitical tensions and a trade war have made IPO markets much choppier in 2025. The CBOE Volatility Index .VIX – Wall Street’s “fear gauge” – hovered above 20 for most of the first half of the year, a level that typically deters bankers from pushing new listings. Yet the market is gradually kicking into gear. The $48 billion raised in the United States, as of Tuesday, per Dealogic, already surpasses the $41 billion total for 2024. Floats in Europe totalled just $7.3 billion so far this year, a 61% drop from 2024's tally, and a far cry from the $92 billion in 2021. Yet there are also signs of life: security group Verisure, owned by Hellman & Friedman, on Wednesday announced the largest float since 2022, hoping to raise just over 3 billion euros.

Those brave enough to test the market have done so at a cost. Companies will typically be issued at a price below their perceived fair value, in order to compensate investors for the extra work of buying into an untested group, and ensure a healthy performance after listing. In the United States, that discount has typically been at least 20%, but this year's IPO crop have had valuation haircuts of around 30% or higher, financial advisors reckon. Klarna, for example, was priced at a 40% discount to rival Affirm AFRM.O on a price to 2028 earnings multiple, when it listed in New York. Its stock jumped on the first day of trading but it now trades just 14% above its issue price.

In Europe, IPO discounts can be smaller, according to bankers. That's partly because the volume of new issues has been low, giving the companies that are healthy enough to list greater pricing power. Take Swiss online retailer SMG. At the top of its range, the Swiss firm would be worth around $5.8 billion. Including net debt, that implies a valuation of 22 times the adjusted EBITDA UBS analysts expected it to make in 2026, ranking it almost in line with the 23 times multiple peers Hemnet HEM.ST and Baltic Classifieds Group BCG.L are trading at. SMG's dominant position in Switzerland helps justify the modest haircut. UBS analysts expect the group run by CEO Christoph Tonini will grow its EBITDA margin to a hefty 56% in 2026, from 48% last year.

Yet SMG may be the exception that proves the rule. With just over three months to go before year end, any companies hoping to list in 2025 will have to jostle for investors' attention. And Verisure, which has not yet published a price range, will be just the first of many large private-equity backed deals to hit the market, with Hg Capital's Visma or TK Elevator, owned by Advent and Cinven, set to float next year. Sellers may therefore have to swallow discounts of up to 35% until the backlog clears, one banker told Breakingviews. Cut-price IPOs will be the new normal.

Follow Karen Kwok on LinkedIn and X.

CONTEXT NEWS

Switzerland-based security services firm Verisure said on September 17 it plans to list on the Stockholm bourse and raise 3.1 billion euros ($3.7 billion).

The company said it intended to use the net proceeds from the IPO to strengthen its balance sheet by refinancing some of its debt and to fund its acquisition of ADT Mexico.

As part of the IPO, Verisure expects to raise 235 million euros from two existing investors, Alba Investments and Securholds Spain, the company said.