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Companies face crunch time on IPO decisions as markets remain volatile

Friday April 8,2011,

In a disappointing quarter for initial public offerings (IPOs) on European exchanges, deal values plummeted by 71% compared to Q4 2010 with a 27% fall in the number of floats taking place.

There were 94 floats completed in Europe in the first three months of 2011, raising just under €3bn -but 129 IPOs in Q4 2010 generated more than €10bn. These are the findings of PwC’s Q1 2011 IPO Watch Europe survey, which tracks the volume and value of IPOs. London hosted the lion’s share of IPOs, but future activity across the entire region remains uncertain.

Against a backdrop of continuing political and economic upheaval, pockets of optimism are returning to the market mainly from Russian issuers. However, jittery companies are still deciding whether to shelve their IPO plans or continue to forge ahead in stormy market conditions.

In London, there is also the further complication of an extended break between Easter and the Royal Wedding prolonging the slump in activity, PwC says.

For the companies who are pressing on with their IPOs in the near future, PwC has found investors are proving uncompromising on their pricing expectations.

Richard Weaver, capital markets partner, PwC said,

"It’s a bitter pill to swallow for companies to be told that the value of their business has fallen dramatically from their initial valuation. Investors are currently so wary that the price they are prepared to pay often doesn’t come close to matching sellers’ expectations. Those companies who are taking the plunge in the coming weeks will be acutely aware of this."

The top five IPOs in Europe accounted for two-thirds of value raised this quarter, with three of these hosted in London. However, over recent days, several large companies such as BILT Paper and Topaz Energy and Marine have decided to pull floats.

Richard Weaver, capital markets partner, PwC, added:

"Q4 2010 seemed to promise a return to health but current market conditions are significantly more uncertain against a backdrop of challenging worldwide political and economic conditions.

"Market conditions are still difficult, but the IPO window remains open. April and May are traditionally two of the busiest months in the IPO calendar but lingering volatility, coupled with the prolonged holiday period, leaves companies with a tough decision to make."

"They must either commit now, or postpone to a later date, hoping that investors will return to the market after the Royal Wedding flush with renewed optimism."

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