Milestones : Growth Set to Trigger Sell-Off Wave


F&C;s Adrian Fowler

European stock markets are expected to perform well in 2006, tempting companies to come to market to finance mergers and acquisitions and to launch IPOs in a repeat of the pattern seen in 2005. Despite a turbulent October, when markets across the region lost as much as 4%, average performance for 2005 was around 20%. That increased European IPO volume by 68% compared to 2004 with $51.2 billion raised, although the total number of deals fell slightly, according to figures from consultancy Ernst & Young.

Adrian Fowler, head of the European institutional investment team at F&C; Asset Management in London, says that the 20% performance of European stock markets in 2005 is unlikely to be matched in 2006. But up to 10% is achievable due to the weight of money coming into the market, an expected stream of M&A; activity and improved corporate earnings.

That should drive an increase in issuance levels. One of the first large deals expected to come to market in the first quarter of 2006 is French electronics company Legrand, which will raise E2.1 billion and has BNP Paribas, JPMorgan, Lehman Brothers and Morgan Stanley as bookrunners. In common with many of the deals expected in 2006, Legrands IPO will be a partial exit for private equity houses Kohlberg Kravis Roberts and Wendel Investissements.

Another partly private equity-owned company, UK-based defense research company QinetiQ, is also likely to try to float in the first quarter. It is currently 31% owned by US house Carlyle Group and 56% owned by the UKs Ministry of Defence. The company, which acquired two American defense technology companies last year, could raise up to 500 million, valuing it at 1.1 billion.

Third-generation mobile phone network 3 Italia, owned by Hong Kong conglomerate Hutchison Whampoa, is expected to float in Italy before March. It postponed its E1.8 billion-E2.5 billion flotation in November because of regulatory problems. French company Aroports de Paris (ADP) could also sell a E1 billion IPO in the first quarter, according to bankers.

Laurence Neville