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German IPOs fail to meet expectations

German IPOs have shown quantity but not quality
  • Diana Petrowicz
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A relatively large number of IPOs have taken place lately on the Frankfurt stock exchange with more expected later in the year. But doubts still remain over the wisdom of IPOs in the post-crisis era. Diana Petrowicz investigates.

In the last six months, seven private equity-backed listings were carried out in Europe and two thirds of these companies were floated on the Frankfurt stock exchange. Recent German IPOs include fashion retailer Adler, listed by BluO, and the flotation of Nordwind Capital-owned auto parts supplier SHW Automotive.

Asked why Germany has seen so many IPOs lately while there have been so few in the rest of Europe, Serge Ragotzky, head of corporate finance at Kepler Capital Markets Germany, explains, "Deutsche Börse is internationally well known. The German stock exchange enjoys a good reputation in terms of transparency and liquidity compared to other international listing venues."

He continues, "IPOs are again an important exit channel for private equity firms and other investors. While in the last two or three years exit strategies were often dominated by secondary buyouts, the stock exchange has re-emerged as a serious alternative in 2010 and 2011."

However, a number of recent flotations have failed to live up to expectations. For example automotive supplier SHW Automotive's share price dropped to €25.71, below the calling price of €26, on the first day of listing. The same happened to retail company Adler, which experienced a fall from €10 to €9.72. In both cases not all offered shares could be disposed.

Another example is Norma Group, first listing in the automotive sector this year. The manufacturer of coupling and fastening instruments set its share price range between €19-24. In the end, the shares were sold at €21.50 but today sit below €19.

These recent difficulties with flotations in Germany might again drive the private equity market towards trade sales and secondary buyouts. Ragotzky believes that trade sales will become more popular again in the near future.

Although Germany has seen a very strong IPO market compared to its peers, secondary buyouts and trade sales still continue as a popular exit route. Whether IPOs will return to pre-crisis levels in the near future remains to be seen.

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