Lights and Shadows of VC-Led IPOs | Financial markets

Four months after cosmetics chain Puig ended a nearly two-year IPO drought in the Spanish market, Europastry, the maker of frozen bakery dough, has also opted for the stock market to raise capital and set up a venture fund. . The IPO, which was canceled yesterday for the second time this year, involved the issuance of 210 million in new securities and the sale of a further 300 million in treasury shares now held by the MCH fund. The challenge ahead was enormous: adding the stamp of risk capital to the uncertainty of a market in which geopolitical tensions, interest rate expectations and doubts about economic sustainability set the pace. Elements that contributed to the failure of the operation at the last minute. At the same time, the mass producer has already had to turn back four times.

While fundamentals lie behind the success or failure of a listed company, recent history shows how investors tend to distrust venture capital funds that put their stakes up for sale. The worst evolution can be explained by the high prices at which it starts. Of nine major fund sales over the past two decades, Amadeus and the defunct Euskaltel (in 2021 it was absorbed by MásMóvil, now integrated into Masorange) are the only ones to register profits. Since returning to the marketplace in 2010, the travel services provider has increased its value sixfold.

A mixed trend repeated abroad. Douglas has lost 23.92% since its IPO in March 2024, and shoe maker Dr. Martens lost 84.9% in the first three years. The opposite side is represented by the Swiss Galderma and Amer Sports. The EQT-owned Swiss pharmaceutical company gained 47.8% in its first six months of listing. In turn, the sportswear manufacturer, which was included in the list of the worst releases over the past two years, is shaking off the red numbers and will rise in price by 40%. The debut of Amer Sport, owned by Chinese company Anta and venture capital fund Fountainvest Partners, was overshadowed by weakness in Chinese demand.

Javier Diaz Izquierdo, an analyst at Renta 4, admits that the market is somewhat more cautious in its valuations when asset sales are carried out by large funds. “The IPO of a private equity controlled company is the final step. They are trying to maximize their profitability, and if they keep the share after the premiere, even if they stipulate a period during which they will not be able to sell more, there is always a risk of revaluation,” he emphasizes.

Ignacio Cantos, investment director at Atl Capital, is moving in the same direction, noting that the main difference that exists between family-owned listed companies that go public and those that are fund protagonists is the objectives pursued. The expert argues that when a family makes every effort to take a company public and decides to retain control, it is looking for something more than short-term profit. That is, they are trying to gain exposure, gain access to other types of investors, and obtain the necessary financing to expand the business, continue to grow, and increase market share.

On the other hand, venture capital tends to maximize profits in order to distribute them to the final investors. Funds take advantage of moments of weakness in companies to buy them at a discounted price. When they clear the balance and restore confidence, they cancel their investment and always try to do so at the highest possible price. The average lifespan of venture capital in companies ranges from three to seven years. “If you maximize value, the route will be very limited,” Kantos emphasizes.

Market sources note that venture capital-led transactions are viewed with suspicion of value management. That is, a strategy that invests in undervalued companies that have a high potential for revaluation. Investors who follow this model do so for the long term and hold companies in their portfolios over a five-year horizon.

In contrast to the mistrust that MCH’s exit from Europastry may cause, the Galles family and Indinuera, controlled by CEO Jordi Moral, are looking to sell a minority stake. This is interpreted as a sign that they will continue to work to increase the company’s value. In the short term, the most immediate risk is delays in overseas cargo shipments due to conflict in the Middle East. Managers quarantined the operation. In addition to concerns raised by venture capital, experts doubted the effectiveness of a business in which competition is very high.