The year 2016 was more or less a lost year for flotations in Germany – yet again, it’s tempting to add. But the prospects look brighter for 2017 – it seems more likely that all the hopeful forecasts of investment bankers will actually be realized in tangible deals.
Sure, they’re a steadfastly optimistic group but several IPOs worth billions are already scheduled for 2017.
And even given all the political risks, it seems unlikely that the splitting of retail giant Metro – long in the planning – will be abandoned even if there are short term fluctuations on the global stock markets.
Two-thirds of company financing in Germany is through loans; only one-third comes from the capital market.
A good year for flotations would be good news not only for investment banks, but also for the entire German economy. The stock market culture still hasn’t recovered from the shock of the downfall of the Neuer Markt, and that’s bad news for all participants. In a seemingly never-ending era of low interest rates, German savers are still paying a high price for their fear of stocks.
And Germany’s companies continue to depend on the benevolence and health of banks. Two-thirds of company financing is through loans; only one-third comes from the capital market. In the United States, it’s the other way round and this not only provides more efficient financing for industry but also reduces pressure on bank balance sheets. And slimmer banks are safer banks.
So we should keep our fingers crossed that Deutsche Börse’s revamped trade segment for young companies will thrive. On March 1, the new segment will replace the entry standard that was dropped after a series of scandals and bankruptcies.
Going forward, to prevent excesses such as the Neuer Markt, Deutsche Börse intends to pay much closer attention to market hygiene. Every participant must fulfill three of five core requirements and these include minimum revenues of €10 million, a workforce of 20 employees and positive proprietary capital. The initiative goes in the right direction, but rules can only partially prevent overheating – what’s needed more generally is discipline from all participants from issuers through banks and ultimately also investors.
The new segment doesn’t have a name yet; it is being determined by a contest. Only a handful of more than 500 proposals have made it to the final round but what it won’t be called is the new “Neuer Markt.”
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