A company announces its IPO? Skepticism is appropriate: the owner often negotiates a sale at the same time. At the moment, however, the two-track processes are less common.
When companies aim to go public, the owners are now more serious than they used to be: they are less intensively pursuing Plan B of a direct sale. This is observed by experts at the investment bank UBS. Almost every exit from a company basically remains a two-way process: If a prospect offers an unusually high amount with a direct offer, owners will usually have to check this out of a fiduciary duty to investors – whether they are private equity owners or listed Companies.
But they are now following a less dedicated “dual-track process”, i.e. parallel preparation for two tracks: direct sales to interested parties (mergers & acquisitions, M&A) and initial public offering (IPO). The ongoing capital market boom and the many jumps on the floor in recent times are motivating to concentrate on the IPO once you have decided on it.
“By definition, every IPO process is a dual-track process. And of course every private equity owner – even if they are focused on an IPO – will always look at an M&A alternative in which they can sell one hundred percent, “says Philip von Malsen-Plessen, who is responsible for the takeover for UBS. and directs capital market business in Germany. The ability to sell in full is a general advantage of the direct variant compared to an IPO, through which an owner initially only surrenders part. “Nevertheless, we have seen in the recent past: Driven by the market development on the IPO side, the focus on IPO exits has certainly increased significantly,” said von Malsen-Plessen. The market valuation of the comparable companies has risen significantly in practically all sectors – which makes an exit via an IPO more attractive.
Take stock market plans with a grain of salt
At other times, IPO announcements are to be taken with a large grain of salt – even if companies often assert that they really want to bring a division onto the floor. This became particularly clear last year using the example of the Siemens Flender drive unit. The Munich Dax group had expressly intended them for a spin-off via an IPO – and presented a direct sale only as an option to be legally examined in the event of very good offers. A smaller number of interested parties who expressed very specific interest were then sent sales documents: according to reports, all of them are private equity companies.
Even when the first round of bids was already underway, a company spokesman confirmed on request that an IPO via spin-off was planned. A month later, Siemens gave the business to the holding company Carlyle for 2 billion euros. Sometimes corporations protect against stock market plans from the outset, while they are actually aiming for a sale – going public is then only the back door or the backdrop to drive the price up. In other cases, they interpret the procedure from the outset with an explicitly open-ended result, as was the case three years ago in the case of the motorhome manufacturer Hymer, the majority of which ultimately went to an American competitor.
“If you go public, then with speed”
While the mood for IPOs was still subdued last year, one IPO is now following the next in Frankfurt. The market is positive, says Armin Heuberger, who heads the capital markets business in Germany and Austria for UBS. He refers to the rapid recovery on the stock markets after the outbreak of the corona pandemic and to the low to zero interest rate policy of the central banks. He also finds that company owners are now less reliant on the two-track process. “I don’t see it the way I used to – a few years ago – when Dual Track was really exhausted to the last moment.” At the beginning, an owner always has to look at both exit options, but: “I think so you lay your cards in advance and then say: ‘We’ll choose M&A’ or ‘We’re going to IPO and then full speed to IPO.’ “
In the IPO business, empty mantles have experienced a renaissance in the past few months: Spacs (“Special Purpose Acquisition Companies”) who first collect capital on the stock exchange and then go on the search for a company acquisition. The target company is then merged with the shell and finally brought to the stock exchange via the Spac. They are particularly popular in America, but are now also increasing in Europe. “We see the Netherlands and Germany as pioneers when it comes to listings for the European Spacs,” says Heuberger. For the number in Europe this year he sees a “corridor from 30 to 60” and in Frankfurt “ten to twenty”. At the investment bank Citi, the head of German investment banking, Sven Baumann, says he wouldn’t be surprised if Frankfurt lands up to ten this year.