Vienna bourse set for IPO comeback

A recent study by the Austrian Private Equity and Venture Capital Organisation (AVCO) suggests that out of 12 planned private equity IPOs in Europe until 2013, at least three will go to Vienna. This is refreshing news for the Austrian private equity industry, which saw its IPO count diminish to just 1.4% of exits since being hit by the financial crisis.

"It was a surprising result," said Jürgen Marchart, managing director of AVCO, adding: "It is indeed better than we expected." In the past five years the Vienna bourse has not seen a single private equity IPO, but that could change soon, according to Marchart: "It is a feature of private equity that will definitely come back I think. It is not an exit route that one just forgets about. Of course it demands that very specific requirements are met, but when that is the case, an IPO is definitely a good option."

Times have not always been as tough according to Dr Beatrix Exinger, spokesperson for the bourse. Between 2005-2007 one third of IPOs in Vienna were private equity exits. Exinger says that although markets could remain volatile for some time yet, she predicts a prosperous future for the bourse: "I think that bourse financing will become increasingly important as measures such as Basel III make it more difficult to get credit financing. I also think that companies have learnt in the crisis that it makes sense to position themselves more broadly in their financing, using external means and equity."

Although the Vienna stock exchange has never been a dominant player in western Europe's financial markets, out-shadowed by neighbours Frankfurt and Zurich, it gained recognition through its proximity to the CEE markets at a time when the regions were considered to be booming. Now the CEE balloon has burst, Vienna's benchmark ATX index has fallen by 34%. This is largely due to its dependency on banks, says Exinger. However, she says there are opportunities for growth: "We think that the criticism of CEE is unjustified. Looking at the fundamental data including federal debt – which apart from Hungary is lower than in western Europe – employment costs and infrastructure, you see that these markets have massive potential."

The bourse's new co-chief executive, veteran equity specialist Birgit Kuras, is keen to lift the institution's profile. She has reportedly set herself three targets: to persuade companies to float, lobby politicians to improve legislation and rid the financial industry of its poor image among the Austrian public. She said her goal was to freshen up the market by bringing in more, and differentiated, IPOs and to get a wider range of companies floated, including those that are private equity-backed. Marchart welcomes the hire: "Fresh blood is always a good thing for any institution and Kuras's goals and targets are pleasing." But he adds: "I do not think that one organisation alone can make a difference. It has to be a united effort of the whole local financial community."

AVCO research has shown that the Vienna bourse is particularly attractive to home companies in the high-tech market. They can benefit from a good regional network, media exposure and they generally get better valuations than foreign companies because of their prominence locally. As such, the bourse is a well situated niche market player that companies can benefit from. "When it's a good fit for the business, the advantages and features can be utilised efficiently and very well," says Marchart.

However, promoters of the Austrian finance industry face tough challenges. The country's private equity and venture capital markets suffer from a regulatory void and the country's anti-corruption laws are weak, leading to a string of reputation-damaging political scandals in the past decade. In addition, the government introduced a tax law for securities in 2011, called Wertpapier-KESt, which caused uproar among finance professionals who call it "a punishment for the long-term investor". The law not only demands higher taxes on profits, professionals claim, but creates an unbearable administrative burden on companies wishing to float.

AVCO has hopes that the AIFMD will lead to positive change in the regulatory sense. But even so, AVCO claims Austria's politicians will have to work hard to reform financial and tax laws for the bourse to stand a chance of becoming a more prolific player. "There are lots of incidents and scandals in Austria that reduce the attractiveness of the asset class. To oppose that and strengthen Austria's international reputation with tougher, clearer laws I think is in the interest of us all."

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• Topics
• DACH
• Austria
• AVCO
• Vienna bourse
• Vienna stock exchange