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A Gloomy Outlook for IPOs in Germany

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The IPO of online retailer windeln.de was the one bright spot in 2015.
  • Why it matters

    Why it matters

    Brexit-related uncertainty, worries about China, interest-rate fears and pricing issues are all conspiring to put firms off launching IPOs.

  • Facts

    Facts

    • A ministerial task force last fall set a target of 15 to 20 IPOs of young, high-growth Germans firms per year.
    • Only one stock-market launch in 2015 met the task force’s criteria, that of Windeln.de, an online infant-care retailer.
    • Global IPO revenues in the first half of 2016 declined by 54 percent to $47.8 billion (€43.2 billion), the lowest figure since 2009.
  • Audio

    Audio

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Last fall, an illustrious circle of business experts met with Germany’s economics minister at a roundtable meeting entitled “More Flotations of Young, High-Growth Companies in Germany.”

Sitting down with Sigmar Gabriel were Jürgen Fitschen, the then co-CEO of Deutsche Bank; Christine Bortenlänger, director of the German Stock Institute; and Ingrid Hengster, management-board member of the KfW, a government-owned development bank.

After long discussions, the 19-member task force set an ambitious goal: for Germany to achieve 15 to 20 “sustainable, successful initial public offerings of high-growth companies” per year.

A few months on, and the reality looks different. According to an exclusive analysis by Barkow Consulting, only one stock-market launch in 2015 met the meeting’s criteria, that of Windeln.de, an online infant-care retailer.

“Our analysis clearly shows that IPOs of young German high-growth companies are few and far between.”

Peter Barkow, IPO Expert, Barkow Consulting

Things look gloomy for 2016 as well. Just three newcomers were added to the list: the biotech company Brain, wind-turbine builder Senvion and fintech firm MyBucks.

But the IPOs were extremely modest or the firms had been in the market for a while and thus were no longer young companies.

“Our analysis clearly shows that IPOs of young German high-growth companies are few and far between. Hence a goal of 15 to 20 IPOs per year seems quite implausible at the moment,” said Peter Barkow, the head of Barkow Consulting.

The economics ministry acknowledged that the goal aims high: “Nevertheless, it is important to deliberately set the bar high. In comparison with other stock-exchange locations, the figure is in no way unrealistic.”

The ministry also said it “intends to maintain this order of magnitude as a long-term goal. The experts at the round table made it clear that this range should be achievable for the Frankfurt stock exchange if developments at other large stock exchanges are viewed in comparison.”

But almost no investment banker in Frankfurt expects the target to be reached in 2016. First, worries exist about growth in China, and then the fear of a rise in key interest rates scared off firms with some IPO potential. And now Brexit is dampening the mood further, because it will mean uncertainty on the markets and skittishness among investors for a long time to come.

Worldwide, IPO revenues in 2016’s first half declined by 54 percent to $47.8 billion (€43.2 billion), the lowest figure since 2009, according to information service Dealogic.

Despite the negative economic environment centering on the Brexit vote, Britain once again beat the German market during the first six months of the year. In Britain, there were 32 stock-market launches with a volume of $4 billion.

“The IPO gap with Great Britain is gigantic. Whether and to what extent this will be reduced by Brexit can’t be ascertained at the moment,” Mr. Barkow said.

 

07 p35 The Trouble With German IPOs-01

 

But some bright spots might emerge at the end of the year and in early 2017.

“In particular, candidates from the areas of service provision, health, real estate and consumption are in demand,” said Christoph Stanger, co-head of European operations for equity capital markets at Goldman Sachs in Frankfurt.

In contrast, IPOs for tech-related firms are dead in the water at the moment. Mr. Stanger points out that this segment is languishing in the United States, too, because of hesitation to take on the risks of such stocks in a low-interest environment.

“Let’s hope that the fall brings more transparency about what will happen with the British. Little activity can be expected before the end of the summer vacation period,” said Stefan Winter, chief executive of UBS Deutschland. Overall, he fears 2016 won’t be a good year for IPOs.

Whenever the IPO window reopens, investment banks, consultants and companies should rethink their pricing policies. Up to now, the results of recent German IPOs have been disappointing, to say the least. On average, investors lost about 16 percent. Only initial subscribers in Covestro, Bayer’s spun-off materials divisions; Ado Properties, a property management firm; and Scout24, an online marketplace for apartments and cars, ended up happy with their investments.

There was apparently less aggressive pricing on the Asian stock exchanges, says Silvina Aldeco-Martinez, managing director at S&P Global Market Intelligence. She says that in China especially, IPOs were valued fairly or even too low in order to present upward potential for investors. That was the apparent lesson learned from a series of wild years on Chinese stock exchanges.

If the price is right, then dream targets such as 15 to 20 IPOs a year are also attainable in Germany.

 

Peter Köhler is a Handelsblatt editor in Frankfurt, reporting on banks, private equity firms, venture capital and corporate funding. Robert Landgraf is Handelsblatt’s chief correspondent for the financial markets. To contact the authors: koehler@handelsblatt.com, landgraf@handelsblatt.com

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