Italian energy and water treatment firm Industrie De Nora succeeded in pricing its €474m Milan IPO thanks to a lot of early interest that allowed it to withstand the challenging market backdrop and end multiple times covered in what is likely to be Europe's last major IPO before the summer break.
Pricing at the bottom of the €13.50–€16.50 range was perhaps inevitable but a 3.5 times covered book was a surprise. Take out the cornerstones and that would be more than five times, a handsome level of demand and well ahead of some European IPOs this year.
It was disappointing then that Thursday’s debut was weak, with the shares falling 4.4% as the FTSE MIB index fell nearly 2.5%.
A banker on the deal said it was not nice to see anything trade down on launch but understood why some investors were selling given the current market weakness.
A syndicate head away from the float said that trading was probably more reflective of the wider market than anything specific to De Nora.
Shares were slightly higher on Friday, trimming the loss to around 3.8%. Crucially the next big IPOs will not launch until September and so there is time for shares to find their feet and possibly rise into positive territory over summer.
As IPO pricing gave De Nora a market capitalisation of €2.7bn, it is seen as an important data point, especially as Italian renewable energy company Plenitude cancelled its float while De Nora was in the market.
“Well done them for bringing something and giving it a go. It’s such a tough market,” said the head of syndicate. “People will remember the debut but I think a stable backdrop in September is more important. Even good IPOs are tough to get done in this environment; marginal ones have absolutely no hope.”
Standout story
There are some clear lessons to learn from how De Nora found demand that other companies simply could not.
This is a market sufficiently unwelcoming that De Nora largely had it to itself, something that certainly helped attract interest, but its equity story also stood out.
“De Nora is a good asset underpinned by a strong industrial story," said Antonio Limones, head of syndicate at top line bank Credit Suisse. "The underlying businesses provide a safe way to play the hydrogen upside. It’s a longstanding business and has a proven management team. Investors like this.”
De Nora combines potentially exciting green hydrogen exposure with long-established businesses.
Another factor was that books opened two days after the price range was set and roadshows began. That gap was forgotten when the covered message came half an hour after books opened on June 22.
“Early coverage was important to dispel any uncertainty over the transaction” said Limones.
Any debate over pricing ended quite early by fixing at the bottom of the range on June 24, the third of four days' bookbuilding.
The presence and choice of cornerstones was also deemed valuable, not just to take a chunk of the deal and validate the valuation, but also because of who they are.
De Nora’s two cornerstones taking €100m each are San Quirico, a holding company for the Garrone Mondini family, and 7-Industries Holding, the family office of Ruthi Wertheimer, daughter of the Israeli billionaire industrialist Stef Wertheimer.
They have a recognised interest in the sector with San Quirico maintaining a controlling stake and chairmanship of energy firm ERG, while 7-Industries Holding describes its focus as mid-sized industrial and life science companies.
New faces
Speaking at a roundtable on Tuesday, Citigroup's co-head of EMEA ECM Suneel Hargunani said De Nora's approach of drawing cornerstone commitments from outside the typical institutional investor pool may need to be replicated in future.
Demand was driven by long-only accounts, particularly domestic investors, sovereign wealth funds and ESG specialists. The top 10 orders took 70% and the top 20 took 80%.
“From an outside viewpoint, it looks like they did all the sensible things you can – getting cornerstones and giving a discount – but you still carry a lot of risk launching in this market," said a second banker away from the deal. "Current volatility, risk appetite and a market backdrop [like Thursday's] all feed into that aftermarket.”
Those working on De Nora said in-person meetings and site visits played a big part in engaging investors.
Bankers said that getting investors to provide clear valuation feedback and potential cornerstone or anchor interest during pilot-fishing has become much harder. As a result face-to-face interaction is expected to be important in getting the next round of IPOs done.
A 15% greenshoe will take proceeds to around €545m if fully exercised.
The company was valued on a sum-of-parts basis across its operations spanning water treatment, catalytic coatings and electrodes, and green hydrogen through Nucera, its electrolysis equipment joint venture with ThyssenKrupp. Pricing at €13.50 represents 16.2 times estimated 2023 EV/Ebitda.
Credit Suisse and Goldman Sachs were global coordinators, and bookrunners with Bank of America, Mediobanca and UniCredit/Kepler Cheuvreux.