Frothy Sales

Germany's IPO market rockets upward

Hello Fresh, IPO, Blue Apron, Plated
Heading to the market -- the stock market. Source: Hello Fresh

A year ago, a Berlin-based subscription meal service called Hello Fresh tried to interest investors in an initial public offering, but there were few takers and the plan was dropped. A year later, with the DAX stock index up 24 percent, Hello Fresh revised its IPO and the offering is now oversubscribed.

The IPO boom in Germany is not only helping internet stocks. Varta, the Swiss-owned industrial-battery company, and Voltabox, a maker of industrial batteries, are among the 10 successful IPOs launched in Germany this year .

“The economy is booming, interest rates are low and corporate profits are rising,” said Michael Muders, a portfolio manager at Union Investment Management in Frankfurt.

“For the next 12 months, there is clarity on the ECB bond purchases and the duration of the program.”

George Hansel, head of German equity, Bank of America Merrill Lynch

One factor juicing the IPO market was the easy-money policy announced by the European Central Bank on October 26, reducing its monthly purchase of bonds to €30 billion, but also agreeing to extend the program for a year. “For the next 12 months, there is clarity on the bond purchases and the duration of the program,” said Georg Hansel, head of the Bank of America Merrill Lynch’s German equity business.

Hello Fresh is a good example of the exuberant mood. A subsidiary of Berlin internet investor Rocket Internet, which specializes in cloning successful US online firms, the company competes in eight countries to provide prepared meals to white-collar workers who are too busy to plan a menu but who are sick of fast-food takeout.

Hello Fresh is in a three-way fight in the US, where it is competing against Blue Apron, another internet darling and a subscription-meal plan called Plated. All three send out food and condiments along with recipes on how to prepare them.

On the Tradegate exchange, Hello Fresh shares are changing hands at €11.75 a share, already above the official price range of between €9 and €11.50 for the IPO, which takes place Thursday. That would value the business above the expected €1.6 billion.

In June Rocket Internet achieved the highest-value tech IPO in Germany in three years when it sold shares in Delivery Hero, its online food-ordering service. The company was valued at €996 million.

There have been 10 IPOs in Germany this year and the outlook for 2018 is equally bright. Siemens will bring subsidiary Healthineers, which finds healthcare solutions using its expertise in medical imaging, to market, and JP Morgan expects a total of about a dozen IPOs.

But with such massive demand for shares – more than 10 times the available offer in the case of Varta and Voltabox – some investors are already worried about a market bubble. “There are institutional players who are short-term investors and take quick profits,” said Union’s Mr. Muder. “And there are ‘tourists,’ who normally shy away from small IPOs.”

Among the institutions are hedge funds such as Och-Ziff Capital Management and Highbridge Capital, which Merrill Lynch’s Mr. Hansel says “often buy as much as 40 percent” of the IPO shares available. German funds such as Deka and Allianz Global Investors have also been active in the IPO market, he says.

Armin Heuberger, who manages German equities for Swiss bank UBS, says the booming economy in Germany is drawing a lot of investors into the market. He notes that the economy is the fifth year of expansion, and the boom has finally spread to other European Union states as well.

Peter Köhler covers banks, private equity and venture capital firms and corporate financing for Handelsblatt. Robert Landgraf is the deputy head of Handelsblatt’s finance section. To reach the writers: koehler@handelsblatt.com and landgraf@handelsblatt.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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