Deja Vu

Nervous Spectators Eye Rocket IPO

Samwer Brothers_Dieter Mayr Agentur Focus
The Samwer brothers have high hopes for the Rocket IPO.
  • Why it matters

    Why it matters

    If the Rocket Internet IPO fails, it could set back listings of other German start-ups.

  • Facts


    • The company was founded in 2007 by three German brothers.
    • Rocket lost €13 million in the first six months of this year.
    • The IPO planned for October 9 is planned to raise up to €1.6 billion.
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Rocket Internet, a loss-making German incubator of online businesses, is aiming to raise up to €1.6 billion ($2.1 billion) next month in what will be the country’s biggest initial public sale of stock since the collapse of the economy nearly 15 years ago.

While the Berlin-based company set up by three German brothers has compiled an impressive list of international banks to manage the sale, including JP Morgan, Citigroup, Merrill Lynch, UBS and Morgan Stanley, the sale planned for October 9  is still seen as a risk by some investors.

In its prospectus published late Tuesday, Rocket said it lost €13.3 million in the first six months of this year, on sales of just €66 million. In 2013, Rocket made a net profit of €174 million, but only after spinning off a loss-making online shoe retailer, Zalando, whose results no longer were counted by Rocket.

While the company’s financial results are relatively meager, Rocket, which was founded by the Samwer brothers, has big hopes of raising big money. The company’s structure, which includes more than 400, mostly money-losing start-up businesses, is complex and not very transparent, some analysts said.

“Everyone has heard of Amazon in Britain, Germany and the United States. Rocket Internet, however, is not a brand,”  said Jochen Reichert, a telecoms, Internet and media analyst at German bank Warburg in Hamburg. “It is a group of many brands with many businesses.”

In the slipstream of Chinese online e-commerce group Alibaba’s blockbuster $25 billion listing last week and cheap money amid record low interest rates in Europe and the United States, seven-year-old Rocket is hoping to tap investor demand for high returns and successful new online businesses.

A smooth start to the IPO appears assured, with several financial investors committed to buying shares.

In its prospectus, Rocket said it intends to “become the world’s largest Internet platform outside the United States and China.”

031 Rocket Internet


Established by Marc, Oliver and Alexander Samwer, Rocket wants to join a string of German companies that have listed recently, including Zalando. The online shoe retailer is Rocket’s best known spin-off in Europe and plans to raise up to €633 million next week in its own IPO.

The global market for public listings has boomed this year, raising a total $167 billion as of last week, compared to with about $165 billion for all of 2013, and almost $120 billion in 2012, according to Thomson Reuters data.

Rocket Internet’s listing could be the biggest sale of shares of a German firm since 2007, when machinery firm Tognum raised €2 billion. If the IPO does raise €1.6 billion, it would be the biggest German listing of an Internet firm since the tail end of the boom when software firm T-Online International raised €3.1 billion in 2000.

Rocket Internet and its subsidiaries employ more than 20,000 people in more than 100 countries. The Samwer brothers own 52 percent of the firm, and other major shareholders are the Swedish investment firm Kinnevik, with an 18 percent stake, German Internet firm United Internet Ventures with 10 percent, and Philippine Long Distance Telephone Company, with 8 percent.

But with stakes in more than 400 Internet firms in Europe, Latin America, Africa and Asia, it might be hard for Rocket to become the next Amazon or Google.


IPOs in Germany
If Zalando sells its shares at the top price of €42.50 per share and including a green shoe option, proceeds will be €1.6 billion.


“It is not one global brand but a set of local or regional brands. Secondly, it is not a business where you own 100 percent of a firm,” Mr. Reichert, the Warburg analyst, said.

Of the 11 companies Rocket Internet labels as “proven winners” in its prospectus, the firm’s stakes ranged between 21.4 percent to 49.5 percent.

The “proven winners” had a total net loss of €442 million on sales of €757 million in the last financial year for which data was available, Rocket Internet said, without specifiying which year it referred to.

“While we believe that our proven winners show promise, there is no guarantee that they will in fact become successful businesses,” Rocket Internet said in its prospectus.

The document also warned investors that it was hard for Rocket to get reliable data on the many stakes it actually does own.

“With the exception of the proven winners, the issuer is not in possession of information that would allow it to reliably quantify the aggregate loss of the companies in any other category,” Rocket Internet said.

The lack of  investment opportunities in publicly listed German Internet firms could nevertheless work in the favor of Rocket’s listing, said Amir Darabi, an analyst at Bayerische Landesbank based in Munich.

“The German market has been relatively closed. In the United States we have Amazon, eBay and many other public firms. That is why institutional firms might want to participate in Rocket Internet,” Mr. Darabi said.

“Few people are participating in the Internet boom in Germany. This market will be opened by Rocket Internet,” he said.

Early investor interest in the Rocket IPO appears strong, and the company said several investors have committed to buying shares.

The German firm had already arranged private placement sales to a number of investors who have committed to buying a total of €583 million of Rocket Internet stock, Rocket said in its prospectus.

If  Rocket shares were sold at the mid-point of its price range of €39, this group of committed early investors would acquire a roughly 39.4 percent of the maximum of 37.9 million shares to be offered.

Among investors who agreed to buy shares are Scottish Mortgage Investment Trust, J.P. Morgan Securities LLC, Credit Suisse and FAR Global Private Markets, an investment firm controlled by Mr. Fahad Abdullah A. Alrajhi,  a Saudi entrepreneur, Rocket Internet said in its prospectus.

Existing shareholders will not sell any shares at the public listing, nor will they sell shares during a 12-month lock-up period, Rocket Internet said.

If successful, Rocket will have market capitalization of €6.7 billion if it is able to sells the shares for €35.50 to €42.50 a share, the top end of its range.

That would make Rocket more valuable than Lufthansa, the airline group, and K+S, the German potash and salt maker. Whether Rocket reaches those altitudes, remains to be seen.

Gilbert Kreijger is an editor for Handelsblatt Global Edition in Berlin, where he covers companies and markets. Contact the author:

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