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Germany IPO outlook: market upbeat despite lingering capital markets scepticism

  • Bumper quarter outdoes FY17 in IPO issuance value
  • Private market exits favoured for high sale multiples and ‘clean break’
  • Springer Nature, Ottobock, Home24 and HSE24 in the pipeline

The recent boom in German IPO deals is likely to continue so long as the wider market conditions support the well-stocked pipeline and the improving buyside sentiment, said local advisers on the sidelines of the Mergermarket M&A Forum in Dusseldorf. Longstanding reluctance towards capital markets is slowly softening, they added.

Deutsche Boerse has welcomed seven new listings year-to-date, which have raised a combined EUR 6.96bn, according to Mergermarket data. The total amount raised has already surpassed all of 2017’s deal value, which came to a combined EUR 2.78bn, twice over.

Highlights of 2018 include Europe’s two largest deals: Siemens Healthineers’ [FRA:SHL] EUR 4.2bn public offer, representing a 15% stake, and Deutsche Bank’s [ETR:DBK] float of a 22.25% stake in its asset management unit, DWS, for EUR 1.45bn. Other listings seen this year include Dermapharm and Stemmer Imaging.

The pipeline of IPO candidates targeting the German stock exchange looks promising for the rest of the year, with 16 candidates, according to this news service’s IPO pipeline. Of these, at least six have a syndicate in place.

Does this mean the tide is turning after years of investor scepticism towards capital markets?

"Germany has been waiting for it,” according to Georg Ganghofer, Head of Investments at Brockhaus Capital Management. Heightened activity is expected to continue as advisers note the crowded market. Brockhaus itself is joining the roll of candidates. The tech-focused company has signalled its intention to tap capital markets for funds after a shift in its financing model from a fund-driven private equity towards a more long-term approach.

Other names in the pipeline include BC Partners’ and Holtzbrinck’s scientific publisher Springer Nature, EQT’s prosthetic manufacturer Ottobock, Rocket Internet’s online furniture retailer Home24 and shopping TV channel HSE24, owned by Providence Equity Partners.

Private equity could at last be fuelling more activity than in previous years, going by the 2018 pipeline. Private equity exits in 2017 accounted for EUR 1.86bn in combined value spread across four deals, Mergermarket data shows. But despite the strong activity in the first quarter of the year, none of the deals completed so far have been sponsor-backed.

"IPOs aren’t that easy for private equity-backed assets, compared to other exit routes", noted Brockhaus’ Ganghofer. Given the high valuations seen in private markets, sponsors will opt for a clean exit via M&A if they can, he added.

IPO deals are coming from a mix of sources including PE-led dual-tracks and corporate carve-outs, said Alexander Arauner, head of corporate finance advisory at UniCredit.

Activity is not being driven by a particular type of seller or sector, Arauner said, noting interest has been very much asset-based. German investors need a convincing equity story and want to see profitability before opening their cheque books. "Deutsche Boerse will never be a Nasdaq Stock Exchange - you can’t sell concepts," he noted.

Despite the encouraging environment, investor cautiousness has been a common topic, as market watchers kept bringing up the fallout of Deutsche Boerse’s Neuer Markt. The tech-focused segment collapsed back in 2003 after being marred with cases of bankruptcy, fraud and accounting irregularities since 2000.

The debacle has left a long-lasting sour taste with investors and issuers alike, even as new alternative market segments and improved regulation emerge to stimulate new issuance, several forum attendants said.

Scale appetite, China inbound interest

The recently created Scale segment for SMEs could address the shortage of small and midcap listings, but doubts persist over its effectiveness. "You have to try something, I suppose," the legal adviser shrugged.

Only Stemmer Imaging and Cyan have listed on Scale this year. At the time of Stemmer’s listing, an investor mentioned to this news service his unease in investing in what was otherwise a good business because the Scale segment is in the open market, as opposed to the EU-regulated market .

Scale’s requirements, though less stringent than the EU-regulated market, are still unsuitable for growth companies, the adviser argued, pointing towards the overall ongoing trend towards increased regulation.

In its one year of existence, Scale has seen a total of six IPOs. It has 50 companies listed, most of which have migrated from the Entry Standard segment. Its recently launched Scale30 selection index has gone up more than 30%, outperforming DAX, MDAX and SDAX indices, according to Deutsche Boerse.

The segment is clearly not a reborn Neuer Markt, a spokesperson for Deutsche Boerse said, pointing towards its cross-sector focus and specific admission criteria, which include among others company history of at least two years and mandatory research reports, freely provided by the exchange through independent research houses.

Another initiative that could boost activity is the expansion of CEINEX (China Europe International Exchange) into equities. The envisaged listing of D-Shares on the Frankfurt Stock Exchange, as promoted by CEINEX, is an interesting development since it would allow investment into blue chip companies incorporated in mainland China, Markus Stephanblome, partner at Clifford Chance, noted. “This clearly is a potential driver of further activity in the German Capital markets,” Stephanblome said.

White goods manufacturer Haier [SHA:600690] is expected to be the first Chinese company to list D-shares on Frankfurt’s CEINEX, as previously reported.

Beyond Haier, retail is not expected to be a source of much activity, which in line with recent trends. Looking at the pipeline, most names would fall under the Tech and Pharma, Medical & Biotech sectors, evidenced by recently announced IPO candidate Serviceware, an enterprise service management software provider, that filed its intention to float on 16 March.

So far, the sector breakdown of 2018 listings value has been heavily skewed by Healthineers and DWS’s IPOs, with financial services and pharma, medical and biotech accounting for 85% of all deal value. In 2017, technology and the known German stronghold of industrials and chemicals took the top spots, representing 83.3% of the annual deal value. If looking at deal volume, last year was dominated by financial services, with a total of six listings, according to Mergermarket data.

  • Join Mergermarket on the 20-21 March 2019 at the InterContinental Hotel in Düsseldorf for the next Mergermarket Germany Forum, visit the website today to keep up to date with all the latest news.
Sofia Cerqueira Editor ECM Mergermarket

Sofia is the ECM Deputy Editor at Dealreporter/Mergermarket, where she covers all types of capital markets issuance across major European markets. Her responsibilities include reporting on IPOs, block trades, rights issues and convertible bonds, as well as editing and training other journalists. Sofia was previously a TMT M&A reporter at Mergermarket.

Sofia Cerqueira Editor ECM Mergermarket

Sofia is the ECM Deputy Editor at Dealreporter/Mergermarket, where she covers all types of capital markets issuance across major European markets. Her responsibilities include reporting on IPOs, block trades, rights issues and convertible bonds, as well as editing and training other journalists. Sofia was previously a TMT M&A reporter at Mergermarket.

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