Frankfurt The IPO market has plummeted this year. According to Deutsche Börse, just nine German companies dared to list in an environment characterized by high inflation, rising interest rates and fears of recession this year. With one exception, these were very small companies. But the coming year could bring the end of this lull.
A majority of the experts surveyed by Handelsblatt expect the market for IPOs to pick up significantly in the second half of the year. The consultants at Kirchhoff Consult expect at least ten IPOs in 2023. Top bankers believe that profitable companies in particular would seek and find their way back to the stock market.
According to experts, however, it will remain difficult before that. “For the first few months of the new year, we expect only isolated transactions, a significant revival more likely from the summer,” predicts Carsten Berrar, capital markets lawyer at Sullivan Cromwell. Because the investment bankers agree: A larger wave of IPOs can only be expected when the high inflation subsides and an end to the interest rate hikes at the central banks is foreseeable.
According to experts, the first litmus test for the receptiveness of the market could be the cloud provider Ionos. According to financial circles, the company could start as a newcomer in Frankfurt as early as February if the markets have stabilized by then. Otherwise, the deal will take place later in the year.
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Ionos isn’t the only candidate getting ready to take the floor. The stock market candidates for 2023 also include the fuel card provider DKV Mobility and Schott Pharmapackaging. The hydrogen company Nucera, part of the Thyssen-Krupp group, is also being traded in financial circles as a possible stock market aspirant.
In view of the current energy crisis, the company’s technology is considered groundbreaking: Renewable energies are in vogue. “Nucera is a hype topic. But it’s unclear whether they’re already there for the first time,” says a Frankfurt capital market banker who asked not to be named.
The uncertainty is still great
Because there is still a great deal of uncertainty in the collapsed market for initial public offerings, or IPOs for short, as the professionals call them IPOs. Joachim Ringer, who is responsible for Credit Suisse’s investment banking and capital market business in Germany, is cautiously optimistic that the market will stabilize in 2023. For this to happen, however, the framework conditions would have to brighten up. “In order to bring the IPO events back to a normal level, more stability is needed,” emphasizes the top banker.
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“It is positive that we can already see a decline in inflation and that the interest rate level will find a plateau in the future,” says the expert. This would make it possible to plan business prospects, which is elementary for possible IPOs. However, IPOs of technology companies would remain difficult for some time to come. When the IPO window opens, companies that can already offer investors stable cash flows will be the first to be seen.
The development in the USA as the leading market for the stock exchange will also be important. “History shows that the IPO market in the USA has to open up before we see more IPOs in Europe again,” emphasizes Berrar, capital markets lawyer at Sullivan Cromwell. The risk appetite for US IPOs is usually greater than that for European ones. This is probably also due to the fact that most investors come from the USA and, after difficult times on the stock markets, first gained confidence in their home market before investing abroad.
So some of the already highly traded stock market candidates in Germany prefer to stay under cover. The IPO plans of the gas engine manufacturer Innio and the building materials manufacturer Xella, which is waiting in view of the cooling construction industry, are on hold for the time being, according to financial circles.
Parship, Stepstone and Chrono24 take their time
The market environment that is needed for a comeback of IPOs does not exist in the first six months, says investment banker Henrik Johnsson from Deutsche Bank. According to observers, some online portals in particular would not make it onto the price list in the first few months next year.
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It is considered unlikely in financial circles that the companies Parship (dating portal), Stepstone (job exchange), Best Secret (online fashion) and Chrono24 (watches), which were traded as candidates at the beginning of 2022, will attempt an IPO in the first half of 2023. In the case of other addresses such as Solaris (banking platform) and Autodoc (car parts), alternatives to raising capital via the stock exchange are now being examined.
The success of the Porsche emission obscures the view of the total doldrums
Because the strong price fluctuations on the stock exchange mean a great risk for the stock market aspirants when setting a schedule. The so-called volatility of the market is measured in the VIX barometer. According to the experts at Berenberg Bank, this indicator was below the critical mark of 20 on only 21 trading days this year. That is why it is such a great challenge to plan IPOs reliably. On the other hand, the pipeline for IPOs is considered to be well filled, and many companies are basically ready.
P911 is the stock market abbreviation of the sports car manufacturer Porsche. The IPO in 2022 was by far the largest in Germany.
(Photo: Bloomberg)
“Despite the continuing uncertainty, 2023 could again be a more active IPO year,” believes Kai Tschöke, co-head of investment banking at Rothschild & Co in German-speaking countries. There are some companies that in 2022 have already made good, far-reaching preparations for a listing. “They could react quickly and agilely to market windows that open and take the step onto the trading floor,” believes Tschöke.
According to Jens Hecht, CEO of Kirchhoff Consult AG, the topic of sustainability is becoming an increasingly important factor in the preparation. “In addition to showing profitability or a plausible way to get there, the focus is more on ESG criteria. Promising companies are already preparing intensively to use the next IPO window with a convincing equity story.”
This year, only sports car maker Porsche stood out in a generally weak year for IPOs. In fact, the nine billion euro Porsche IPO in 2022 accounted for the entire issue volume in Germany. However, the transaction did not materialize because the owner family of the Porsche parent company Volkswagen was not interested in a maximum issue price in order to be able to buy cheap Porsche shares themselves. The deal was therefore also successful in a market environment in which no other companies dared to list.
Many newcomers from 2020 and 2021 have disappointed investors
According to Berenberg’s calculations, without the sports car manufacturer’s listing, the volume of emissions in Europe would have fallen by 93 percent compared to the previous year and would have roughly reached the level of 2009. After all, Porsche shares have risen significantly since the first day of trading, while many newcomers from 2021 and 2020 disappointed investors, including Mister Spex and Auto1.
On the other hand, the investment bankers do not expect any revival in 2023 with regard to the special topic of empty stock exchange shells. These SPACs – the abbreviation stands for Special Purpose Acquisition Companies – experienced a real boom in the USA in 2021, and there were also isolated issues in Europe. At Spacs, an empty company shell first goes public and then looks for a takeover target, which is then listed through the back door, so to speak, by means of a merger.
According to investment bankers, there are currently only very few active spac processes in Germany. This includes, for example, the Spac European Healthcare Acquisition & Growth Company (EHC), which according to financial circles is in takeover talks with the Austrian medical technology manufacturer Croma.
More: 2022 was the year of the canceled IPOs