In the transatlantic tale of two footwear giants, the “Birkenstock spread” reveals a stark contrast in stock market resilience. While Birkenstock thrives in New York, Dr Martens falters in London. The trend underscores a broader issue as European firms increasingly choose American listings for higher valuations and broader investor bases. Europe’s lag in IPOs poses challenges, from elevated capital access hurdles to geopolitical competition with the US and China. Bridging the gap requires regulatory reforms and a unified market approach, or else the Birkenstock spread may become a symbol of Europe’s financial struggles.
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By Lionel Laurent
The “Birkenstock spread” might sound like an embarrassing wardrobe malfunction. But it’s one way of seeing how two European footwear companies have performed on the stock market since going public — one in New York, one in London. It should set alarm bells ringing across continental financial hubs, not just the UK.
The US clearly has the open-toed edge. Birkenstock Holding Plc has bounced back from one of the worst market debuts in two decades after snubbing its German homeland to list in New York, and is now 8% above its initial public offering price. London-listed Dr Martens Plc — whose Anglo-German boots have won over goths, punks and nu-metallers — has slumped some 40% over the same period and is well below its IPO price after a November profit warning. These firms derive around 45% to 55% of sales from the US, according to data compiled by Bloomberg.
Fashions are fickle, as my colleague Andrea Felsted has noted, but the underlying stock-market trend is not.
As more companies opt to list in the US for the promise of a higher price, access to deeper pools of capital and a less risk-averse investor base, Europe limps further behind. American-listed firms make up almost 70% of the MSCI World index (which tracks the biggest developed-country companies by market value), whereas a decade ago it was around 50%. Sure, this is largely a function of US Big Tech getting bigger, but there are other issues. The UK’s share has shrunk to around 3.9%, about half what it was in pre-Brexit times: Trading volumes have slumped in recent years, and leaving the EU has “cannibalized” London’s pool of listings as the euro zone promotes its own hubs and emerging-market firms stay home.
The likes of Paris and Frankfurt haven’t made great strides in closing the gap either, with France’s MSCI World share below 4% and Amsterdam rising slightly to 1.4%. Even as regulators try to promote a more integrated European Union capital market, continental hubs still feel distinctly national. Fading animal spirits and weak economic growth have seen the number of listed firms in Europe fall 17% over the past decade, while it’s risen slightly in the US, according to trade association Amafi. Last year’s $14 billion raised by company IPOs on European exchanges was the lowest haul in almost a decade. A lot is riding on this year’s pipeline, from Renault SA unit Ampere to Greece’s largest airport.
There are real-world costs to Europe’s market lag. One is a higher hurdle for companies to access equity capital in Europe as investors demand more compensation for risk, says Per Einar Ellefsen, CEO of Amundsen Investment Management. Take the auto sector, where the ability to raise cash is king: In 2020, US carmaker Tesla Inc. raised billions in equity not once or twice but three times in the space of 10 months — and saw its share price rise instead of the expected fall that share sales usually bring. Hard to imagine a similar feat in Europe, where carmaker share sales are rarer and smaller: Renault is eyeing an €8 billion to €10 billion valuation for Ampere, but Bloomberg Intelligence says the reality may be lower.
Another is geopolitical, amid what Germany’s Vice Chancellor Robert Habeck says is a European “competition” with the US and China. As trade flows become less global and more regional, it matters where capital and companies go. Hence why Germany has thrown electric-car battery developer Northvolt AB almost €1 billion in subsidies to build a plant in Germany rather than head stateside. Northvolt has also secured a $5 billion green loan, perhaps a sign of Europe’s stronger skew toward debt finance. But stock markets will increasingly become a precious source of capital for the energy transition. With an IPO clearly in Northvolt’s sights, Europe can’t afford to sit this race out.
What can be done? Clearly, integrating the EU’s 27 disparate markets into a single one would be a game changer, uniting rules and regulations to incentivize channeling more savings into stocks. But that will be no mean feat with national authorities still jealously guarding their patches.
Maybe a good start would be listening to the stock markets themselves. Irish stock exchange boss Daryl Byrne recently suggested a more level playing field for stamp duty on investing, which in Ireland is 1% yet in France is 0.3% and in the UK 0.5% (and zilch in the US). Euronext NV CEO Stephane Boujnah, meanwhile, has called for a rethink of insurance regulations known as Solvency II, which he said in 2016 were stunting institutional investors’ capacity to invest. A 2021 report on Solvency II by the Institut Louis Bachelier estimates that regulatory constraints could account for as much as a 15-percentage-point difference in potential equity allocation by long-term investors.
Until Europe gets its act together, expect the Birkenstock spread to be depressing viewing — as well as the source of wardrobe malfunctions.
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