Partners Brace for Capital Markets Slump Following Ukraine Invasion

Partners across London expect IPO work  and corporate transactions to dry up across the U.K. and Europe during the first half of this year, as uncertainty around the wider economic impact Russia’s invasion of Ukraine grows.

Capital markets has already slowed due to rising inflation, geopolitical tensions and the continuing pandemic. But now the general IPO market “is going to be pretty much closed”, said one London Magic Circle partner. 

An ECM partner at a large international firm agreed that “the invasion of Ukraine adds significantly to a number of headwinds that have already hit the pipeline”.

“We’re expecting activity levels over the first half this year to be much lower than those we have seen in the last two years, with most of the pipeline deferred to the second half or beyond.”

According to data from Refinitiv, the first two months of 2022 have seen the proceeds of IPO’s down 98%, to $93.7 million, compared to the same period last year when the figure stood at $3.9 billion.

Another London partner at a large international firm agreed: “I’m imagining we would see almost no deals in H1. It had largely stopped anyway, this has just made it worse.”

Europe saw an IPO boom last year with an extremely busy market delivering the strongest first quarter for European IPOs since 2000. 

In the week after the invasion began, there were no IPOs at all in the U.K. or Europe, and only 14 worldwide.

Various IPOs have been postponed, including Burger King and NewDay. Mishcon de Reya had already postponed its IPO due to a volatile market, but some are still expected to go ahead like Olam, the Korean food company.

It has been reported that Burger King was expecting to float this spring, while Olam stated last year it was “preparing for listing by H1 2022″.

“All across the city we’re scrambling to work out what we have to do,” said one London partner.

The feeling is the same in parts of Europe ,as one Frankfurt partner noted: “IPOs are dead, and will be for a while.”

Bonds have also suffered a significant hit as a result of the Russian conflict.

“On the bonds side it is completely pens down. Lawyers are just saying we have to stop and pick this up in a few weeks,” said a partner at a large international firm. 

It’s not just capital markets that are taking a hit; corporate transactions across Europe are too, according to partners.

“Deals are being slowed or halted, and I’m not talking about Ukrainian deals, this is Europe to Europe deals,” one of the partners said. “Deals that don’t have any Russia or Ukraine components.”

Transactional activity has been extremely busy until now. In 2021 European M&A hit a 14 year high with deals totaling $1.4 trillion. February 2022 deal value was down 63% compared to last year—from $31.3 billion to $11.7 billion.

Another Magic Circle London partner described any deals with Russia now as a “blackhole” as they risk putting firms in a vulnerable position.

“We don’t know if the counterparty is a counterparty we can accept money from. What if we accept the trade and have delivered securities and then we’re left exposed?”

In the U.K. last week there were a total of 34 M&A transactions. The last time the figure was that low was the final week of 2020 at the height of the pandemic.

The partners predict the market may bounce back provided the conflict stays localised.

“If it stays self contained the markets figure out a way around it,” said one partner, while another added: “The market could rebound reasonably quickly.”

Lucille Jones, deals intelligence analyst at Refinitiv said: “Concerns over the escalating situation in Ukraine and the political and economic fallout that will follow may affect corporate confidence and is likely to impact deal making further over the coming months.”