EU's New IPO Rules May Help to Revive Interest in Tech Listings


In early July, the European Union announced a new Listing Act as a means of luring in more deep tech startups to debut throughout the continent as a means of galvanising the bloc’s diminishing volume of IPOs in 2022. 

The term ‘deep tech’ refers to tech firms that possess business plans that involve significant innovation to resolve scientific or engineering challenges. At present, deep tech startups predominantly exist in the U.S. and China, but the EU hopes that its new listing rules can help companies to flourish in Europe.

Although the prosperous market conditions of 2020 and 2021 saw many tech firms grow in value to stratospheric levels, the long-term development process of deep tech startups meant that fewer companies were capable of riding the wave of newfound investor attention. 

As a result, deep tech startups typically require longer term investment commitments and more financing rounds than other tech firms. This makes securing venture capital and private equity investors an essential component of the sector. It also means that facilitating access to the public capital markets can be an essential means of sourcing finance for deep tech companies. 

In the EU’s proposed changes to the Listing Act, which are set to be introduced in the second half of 2022, a series of simplifications and standardisations throughout the bloc’s member states is intended to attract some €45 billion in private investment. 

The key attraction for deep tech firms is that the EU will allow founders and families to retain control of the company post-listing while still benefiting from the same benefits that come from flotations – namely access to larger investment pools and greater liquidity through the implementation of dual share structures like in U.S. markets. 

The EU’s plans come at a time when global markets are suffering from a lack of fresh initial public offerings. Due to the many factors impacting stocks around the world, such as inflation, supply chain shortages, and widespread tech stock sell-offs, many prospective IPOs have been shelved due to market volatility. 

It’s likely that the European Union has introduced an easing of restrictions in a bid to encourage more listings that are likely to hold their value over the long term. 

European Markets Record Steady Growth

Despite the well documented challenges facing European markets in 2022, Nasdaq’s European markets actually experienced some steady growth, with a particular emphasis on the exchange’s First North Growth market, as well as welcoming new companies on its Green Designations program. 

Throughout the first half of 2022, Nasdaq’s European Markets saw 46 new listings throughout Nordic countries, raising a total of €586.7 million. It’s hoped that these early signs of renewed optimism in stocks throughout Europe can lead to more prosperity across a wider range of stocks – making the continent a more attractive place for fresh IPOs. 

“Despite a slower start to the year, there’s a healthy pipeline of companies across all sectors that are waiting for their opportunity to IPO in the next 12 months,” said Nelson Griggs, president of the Nasdaq Stock Exchange. “Nasdaq is the exchange of choice for companies transitioning to public because of our support through the IPO process and our commitment to helping them navigate the markets as public companies through our life-cycle solutions.”

To quantify the global IPO slowdown that’s currently taking place, Q2 2022 data has shown that the worldwide initial public offering market saw 305 deals take place, raising $40.6 billion in proceeds throughout. This represents a year-over-year decrease of 54% and 65% respectively. 

For 2022 so far, we’ve seen a total of 630 IPOs, raising $95.4 billion, which is a decrease of 46% and 58% respectively in comparison to the same period in 2021. 

Unprecedented IPO Access for Retail Investors Could Accelerate a Recovery

Despite the underwhelming listing figures for 2022 so far, there are plenty of reasons for investors to remain optimistic about the future of an IPO market recovery in Europe. 

The EU’s plans to lure more deep tech firms to list on the continent illustrates a drive to galvanize the market and leverage a stronger recovery when current market challenges alleviate and optimism begins to flow back into stocks and shares. Another factor that may help to accelerate the recovery is the emergence of fintechs that provide greater and more comprehensive access to IPOs for retail investors.

While initial public offerings generally hold very little public accessibility, fintech platforms are working to democratise this area of investing with features that allow individuals to buy into the offerings of their choice. 

Robinhood is one well-documented case of an investment platform opening up the opportunity for investors to buy into IPOs with the app’s ‘IPO Access’ feature, but there are many alternatives to Robinhood that operate in Europe and offer the same technology.

Although 2022 is set to remain a challenging year for stocks in Europe and beyond, the news that the EU is set to adapt its rules to become a more attractive prospect for deep tech startups is a welcome sight – and it’s reasonable to expect more concessions to be made to incorporate other listings across far reaching industries. 

With new technology on hand to help drive the recovery, Europe may be well-positioned to recover well when optimism returns to the markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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