Stock Market Business is Booming

Companies are crowding on to the stock market in China and the United States. But the reverse is true in Germany, where there were only two share issues in the first quarter.
Quelle: Bloomberg
Snap's technology mega-deal caused a stir in U.S.

Around the world, champagne corks have been popping for companies and investment bankers. In the first quarter of this year, the number of initial public offerings reached its highest level in more than 10 years, with 369 newcomers and an issue volume of $33.7 billion (€31.6 billion).

Almost half the initial public offerings, or IPOs, took place in China. The market engine was also roaring in the U.S., where social media company Snap caused a stir with the first technology mega-deal. New shares worth $3.9 billion were sold.

In contrast, the party almost completely bypassed investors in Germany, where the market was in the doldrums. Just two companies went public in Germany, according to a study by consulting firm Ernst & Young (EY). Specialist mechanical engineering company Aumann raised €251 million in its IPO and specialty chemicals producer IBU-tec raised €20 million.

"We have a problem with shareholder cultures, not just with investors but also among companies," said Jürgen Kurz of the German Society for the Protection of Securities Holders (DSW). Instead of obtaining capital through the stock market, companies – especially small and medium-sized companies – prefer to rely on bank financing or bond issues.

Because of the zero interest policy of the European Central Bank (ECB), companies currently have access to debt capital at very favorable terms. Some companies have also saved up so much in liquid funds that they can easily make investments on their own. "Many family-run companies are also afraid to relinquish control, or they are afraid of the reporting requirements of a listed company," Mr. Kurz said.

We have a problem with shareholder cultures, not just with investors but also among companies Jürgen Kurz, German Society for the Protection of Securities Holders

From his perspective, there are good reasons to support going public, including a more transparent balance sheet and business strategy. The media also pay more attention to publicly traded companies. "This shines more of a spotlight on the companies among customers and investors," said Mr. Kurz, adding that this is why a cultural shift was needed among company owners to promote shareholder culture.

For investors, however, buying new shares has been a risk, as IPOs from 2016 and 2017 demonstrate. Of the eight German IPOs in 2016 and to date in 2017, five are trading higher today, including biotechnology stock Brain and Aumann. In contrast, investors who bought shares in wind turbine builder Senvion in the IPO have suffered a loss of more than 20 percent. Every share issue is a balancing act among various interests, in which the issuer strives to achieve the highest possible issue price, whereas investors prefer to see room for the share price to rise.

There are high hopes now for the new Scale market segment, which is reserved for growth companies. "We are confident that there will be about five new issues here in the course of the year," a spokesperson for Deutsche Börse said. Many IPO candidates were not ready to go in the first three months of the year, he explained.

The experts at EY are optimistic about IPOs worldwide. In recent years, economic and political crises and surprises have repeatedly caused IPOs to be postponed at the last minute, explained EY capital market expert Jan Miller. Alternatives have included takeovers by financial investors or strategic buyers. "For the current year, we expect activities at the previous year's level, or even a slight increase, provided the uncertainties arising from the Brexit and the new U.S. trade policy subside. A total of 10 IPOs in Germany this year is a realistic expectation," Mr. Miller said.

 

05 p38 Stock Exchanges in Germany-01

Market players are paying particular attention to Healthineers, the Siemens medical technology division, which promises proceeds in the billions from its expected IPO. The same holds true for Deutsche Bank's asset management division. In the case of Healthineers, however, management is keeping the option open to possibly go public in the U.S. instead of Germany, so as to optimize the proceeds.

Now that plans to merge with the London Stock Exchange are off the table, Deutsche Börse Chief Executive Officer Carsten Kengeter and his team can pay more attention to these issues. "One of the most distinguished tasks of the management of a stock exchange is to bring in enough new blood," said an industry observer. This is especially true in light of the seemingly enormous divide between European stock markets and the biggest magnets for market newcomers, New York, Shanghai and Shenzhen.

On Wall Street alone, there have already been 15 IPOs this year, with a total issue volume of $9.6 billion, and according to EY there have been 143 IPOs on the two Chinese stock markets. According to information service provider Thomson Reuters, heavyweights like Invitation Homes, Becle SAB and Prosegur Cash have enriched the foreign trading venues.

In Germany, however, investors are still struggling with two disasters from the past. The price of the second tranche in the Deutsche Telekom IPO proved far too expensive, and the decline of the segment consisting of companies in future-oriented industries, the New Market, "still affects investors today," said DSW expert Mr. Kurz.

Around the turn of the millennium, more than 350 companies ventured into the stock market. However, most business models were not viable, and many companies failed. This is what all parties are determined to avoid, which is why the motto in 2017 is "class ahead of mass."

Peter Köhler is a Handelsblatt editor in Frankfurt, reporting on banks, private equity firms, venture capital and corporate funding. To contact the author: [email protected]