Key Takeaways:
A new report from financial data firm Mergermarket shows European companies that list on their home exchanges have generated significantly better stock-market returns than peers that listed in the US, questioning a key assumption that has driven initial public offerings west.
"There definitely was a common assumption built in over the last few years that U.S. listing would automatically unlock a valuation premium. Data is exposing that to be a myth for a lot of companies,” said Brent Sanders, a U.S. securities specialist and corporate M&A partner at law firm Travers Smith.
The data is stark. For a cohort of companies that went public in 2021, the 29 European firms that listed in the US saw their shares decline by an average of 52 percent since their debut. By comparison, the 493 companies that listed in Europe experienced an average loss of just 22.5 percent over the same period, according to the report.
This performance gap of 29.5 percentage points suggests European companies may face a tougher path in US markets, potentially becoming "orphan stocks" without strong local investor support during difficult periods. The findings could prompt a strategic re-evaluation for European boards, weighing the allure of deep US liquidity against the evidence of stronger aftermarket performance at home.
The report’s findings cut against the strategy employed by a number of high-profile European companies, including semiconductor designer Arm Holdings and gambling group Flutter, which pursued US listings in search of higher valuations and deeper investor pools. Analysts have long cited proximity to a company's customer base and more liquid capital markets as primary drivers for European firms to look across the Atlantic.
However, the risk of being overlooked in a larger, more competitive market is significant. "The chances of becoming an orphan stock are much higher when you’re listing in your non-home market,” Mergermarket’s global head of equity capital markets, Samuel Kerr, said. He noted that strong local support is crucial when a company's share price falls and it needs to raise additional capital.
Despite the performance data, the US will likely remain a key destination for certain European companies. For technology and healthcare firms in particular, the concentration of specialist investors and innovation ecosystems in US markets can provide advantages that outweigh the risks, according to Sanders. Meanwhile, European and UK authorities are actively pursuing reforms to make their own capital markets more attractive, though the success of these initiatives is not yet certain.
This article is for informational purposes only and does not constitute investment advice.
