Insurance against the risk of public income entering the market
In these almost two years, the Spanish stock market has lacked companies that would like to enter the market in search of financing abroad. But after 20 months of waiting, perfumer Puig was the first to make an IPO offer on Friday. And it was a great success, as it was the largest IPO in all of Europe to date and the largest listing on the Spanish market since Aena went public in 2015.
So optimism appears to be returning to markets, although global IPO volume fell 7% this first quarter, according to EY data. Caution remains at its highest as despite this decline, proceeds from these IPOs still rose 7% to $23.7 billion (€22.2 billion).
This remains to be seen If Puig’s premiere causes a domino effect in more companies, although there are companies such as Berger that have canceled Astara’s 2024 IPO “due to market conditions.” For now, other candidates such as Europastry, Hotelbeds, Volotea and Tendam appear to be moving forward with the intention of entering the market, some in the summer, others later.
According to market data, Up to 11 major IPOs planned for 2024. On the other hand, these transactions entail certain difficulties for companies, which is why the wait for finally being able to list is so long, since preparation is key.
IPO risks
“An IPO represents a very important change for a company, especially in its risk profile,” explains Estefania Taboada, who works at Beazley, a company specializing in IPO insurance in Europe, North America and Asia, as director of underwriting for international financial lines. The main factor in accidents for companies opening for trading in the market is in the brochure they give out when hitting hard wood.
“A prospectus for the sale or admission of securities to regulated markets is a document that the issuer (that is, the company) must prepare and publish before it begins to sell securities to the public or admits them to trading,” the National Commission says. . Stock Market (CNMV) section of its website. Therefore, since this brochure is important for the IPO, it must be scanned almost down to the millimeter.
“That’s one reason IPO risk policies exist, but it’s not the only reason,” says Taboada. Beazley management says it’s safe.”allows you to isolate in a certain way the responsibilities that may arise as a result of the transaction“In addition, he notes that this product is a highly synergistic complement to other types of insurance, such as D&O (an acronym for directors and administrators).
This type of IPO coverage has had very poor performance for several years. in terms of new hires, due to little movement in marketplaces around the world, but this does not mean that these coverages are missing from companies. According to Taboada, the policy offers coverage for up to six years, unlike a D&O policy that renews annually. Moreover, this insurance can be taken out in other contexts, such as when issuing debt: “With an informative prospectus, this policy is available to insure its obligations,” states Taboada.
Discrepancies in the prospectus, which may contain financial information or risks faced by the business, are key for investors as it affects their decisions. They are the primary source of insurance claims that also serve the insureds themselves, the company, majority shareholders, selling shareholders, subsequent securities issues, and regulatory and internal investigations.
“Any alleged false or erroneous misstatement or failure to state a material fact or failure to comply with an offer could result in prospectus signatories incurring significant costs of defense or indemnification,” says Oswald Carvalho, general manager of risk management at Marsh Spain. .
Various protection
As for the coverage limits this product can provide, they directly depend on “how much or how little you want to insure,” says Taboada. In Beasley’s case The limit of the sum insured is 25 million euros.. However, in the case of the March, Carvalho admits that in the last operations in which they participated, The amount of insured protection increased from 50 to 150 million euros.
As for the cost of this protection for companies that go public, it also varies depending on several factors, which Carvalho explains: “it is influenced by the sector of activity, its financial position, its typology, the volume of the operation and the value of the society. It also depends on whether there will be access to US investors through a direct listing in the United States.
Finally, it should be noted that With these insurances there are almost no accidents., but when there is, it is quite harsh. Both Taboada and Carvalho agree, which is why they both argue that an IPO is almost always guaranteed.