Europe’s wilting bourses get fresh cause to unite

Exchange of views. Europe’s listings malaise keeps getting worse. Over the weekend Italy’s $1.8 billion oil refiner Saras and $1.5 billion fashion group Tod’s announced steps to delist, adding to a raft of high-profile EU firms that have chosen to go into private hands, like Synlab, or to move their primary listing to the United States, like CRH. With Europe struggling to attract large listings or generate a sufficiently robust pipeline of startups, it’s a fresh wake-up call for euro zone trading venues to get more integrated.

The latest departures mean Italy’s stock market, part of $9 billion Euronext, could shrink by some 3 billion euros. On Sunday, the Moratti family agreed to sell 35% of Saras to global commodity trader Vitol, which will launch a takeover offer to the rest of the group. On the same day, private equity firm L Catterton offered to buy 36% of Della Valle family-owned Tod’s ahead of a delisting.

The announcement comes despite attempts by Giorgia Meloni’s government to make the Italian venue more attractive. Across Europe, take-private deals were collectively worth some 33 billion euros in 2023, and over 130 billion euros since 2021, data from PitchBook show. Meanwhile, Europe’s initial public offerings appear to be stuttering. Last year, European listings were down 20%, and their $13 billion of proceeds represented an annual drop of 32%, according to EY.

Stock market exits are fine, but not if the departing parties aren’t fully replaced. Germany and France are home to less than 70 unicorns – companies that have surpassed a $1 billion valuation in private funding rounds, Crunchbase data show. That’s only 5% of the 1,500-plus existing unicorns, half of which are based in the United States. In a recent speech, European Central Bank President Christine Lagarde lamented that the European market is underdeveloped and that European startups only attract half of the funding U.S. rivals do.

A wider problem is European equity markets’ relatively shallow liquidity. One part of that is the collective market capitalisation of European Union venues at the end of 2023 was only $12 trillion, against $49 trillion for the U.S. But as Lagarde also pointed out, Europe has three times as many exchange groups and 20 times as many post-trade infrastructure providers as the U.S. New Financial research has found a clear correlation between the size of a stock market and its depth, IPO activity and liquidity.

Fixing that requires the European governments, starting with the 20 countries sharing the euro, to overcome national barriers and reduce the number of European listing venues. The real step change would be to enable a union of Euronext, which oversees over 6 trillion euros of liquidity across venues including Paris, Milan and Amsterdam, and Germany’s $37 billion Deutsche Boerse. That would create a nearly 10 trillion euro venue, able to rival U.S. venues in scale.

That requires overcoming antitrust concerns that have hobbled past large-scale M&A attempts like the 2012 failed NYSE Euronext-Deutsche Boerse merger. It also requires loosening national controls over trading venues, market supervision and different rules on areas like insolvency and disclosure. Governments in capitals from Rome to Paris have tended to swerve that in the past. Yet if they keep doing so, it will be hard to attract future large listings.