In London or New York, the sale of shares in Hella, a German auto parts maker, wouldn’t raise an eyebrow. The company, based in the northwest German town of Lippstadt, is selling 11.1 million shares to professional investors in a transaction that will raise €278 million ($350 million).
But this kind of targeted sale – known in banking parlance as a “private placement’’ – has until now been a rarity in Germany, where firms tend either to be sold outright to buyers or go public through initial share offerings aimed at the broader market of retail investors.
Hella, which is owned by the Hueck founder family, is choosing a private placement because investor interest in Germany’s IPO market, initially strong this summer, has petered out amid poor launches such as Rocket Internet, an Internet incubator, and Zalando, an online shoe retailer.
Unlike Rocket Internet and Zalando, whose share prices have fallen 2 percent and 15 percent, respectively, since their IPO launches, Hella wants to avoid the sudden decline in market value.
Hella is not letting the negative sentiment surrounding German IPOs block its partial sale to investors and has chosen a private placement to professional investors, which brings benefits and disadvantages with it.
The company, which makes auto headlamps, sensors and diagnostic equipment, earned €222.9 million in the fiscal year that ended May 31, up 11.4 percent from €200.4 million a year earlier. Sales rose 10. 4 percent to €5.3 billion from €4.8 billion.
The sale to institutional investors – which represents a combined 15 percent stake in Hella –will be conducted in two steps. After selling 11.1 million shares in the initial phase, Hella plans to sell another 5.75 million shares owned by the Hueck family in a second tranche.
The Hueck family has agreed to retain a 60 percent stake in the auto parts maker until 2024, but could under terms of the transaction sell a further 25 percent stake within six months. The shares will be listed starting November 11 in Frankfurt. Bankhaus Lampe, a private bank in Bielefeld, Germany, is conducting the private placement.
“Hella is and will remain a family-owned company,’’ said Rolf Breidenbach, the Hella chief executive.
Hella is not letting the negative sentiment surrounding German IPOs block its partial sale to investors and has chosen a private placement to professional investors, which will bring benefits and disadvantages with it.
On the positive side, Hella will avoid reputational damage from having to suddenly cancel its IPO in the face of lackluster interest or a sudden downward post-IPO swing in share price. The two-step sales process will also discourage investor flight in the face of a falling share price.
But the private placement also has a downside. Shares in Hella will remain in only a few professional hands and trading is likely to be limited, which will limit growth in the company’s market value, which based on the first tranche is now estimated at €2.8 billion.
While investors complain about the lack of IPOs and share sales in Germany, the private placement by Hella – as imperfect as it may be – is better than no sale at all.
Susanne Schier leads the investment team in Frankfurt at Handelsblatt. Kevin O’Brien is the editor in chief of Handelsblatt Global Edition. To contact the authors: firstname.lastname@example.org and email@example.com