Share Listings From IPO to IOU

Germany is poised for another spate of IPOs. But for many retail investors, these initial public offerings are often too late to cash in on a young company's growth. That is increasingly happening in the runup to going public.
Erich Sixt.

There will not be a new edition of Frankfurt's Neuer Market, or New Market, stock index for start-ups, which died a quiet death after the implosion of the dot.com bubble.

Young firms nowadays are not ripe for the stock exchange and lack the necessary capital, according to Deutsche Börse. To encourage their development, the owner of the Frankfurt Stock Exchange started an online platform that enables big investors to invest in young companies – long before they reach an IPO. The early investment is an intentional point – billions of euros are thrown away in a fruitless search for lucrative investment opportunities.

The collapse of the New Market index brought heavy losses for investors and gave risk a bad reputation in Germany, making money managers even more careful. The new platform is off-limits to amateur investors – only experienced financial pros and wealthy individuals can invest here. This is quite sensible to stop inexperienced small investors from going bankrupt. On the other, it is frustrating that big investors are the ones still making most of the money with companies that aren’t yet listed on the stock exchange.  

Often for investors, an IPO is too late to invest; all of the good news has already been factored into the initial sales price of the share. When reality sets it, on Day One of trading, the results can be negative.

Facebook and Twitter were prominent examples of companies that fell in the first week of trading. But even in Germany, it will take years until online businesses such as Zalando or Rocket Internet achieve the kind of appreciation that they achieved in their pre-trading rounds. If they ever make it.

Think about it: Financial investors only give away shares if they have already made some money with them – i.e. only when the share rates of listed companies are more comparable.

For this reason it is not an encouraging sign for the stock markets generally that more companies are risking to IPO again.

For this reason it is not encouraging for the stock markets generally that more companies are risking IPOs again. In Germany, investors can even subscribe to two shares of the same offer at the same time. The online retailer "windeln.de" and Sixt leasing, a car rental site and offspring of Sixt, are offering these options.

After almost 30 successful years on the stock exchange, Erich Sixt, the founder of the car rental empire, decided when it would be good to sell. The successful history of Sixt shares should encourage investors to buy shares in the new leasing subsidiary. If Sixt's leasing shares rise to €21 after the IPO, that would mean a gain of  €18. Mr. Sixt is doing the right thing: he is selling when the selling is good.

 

This article first appeared in Wirtschaftswoche. To contact the author: [email protected]