CORPORATE FINANCE No. 01-02 31.01.2020 by Dr. Konrad Bösl

Although at the end of the year the Saudi oil company Saudi Aramco completed its largest IPO to date, with an issue volume of USD 25.6 billion excluding greenshoe, the global market for new issues in 2019 was significantly weaker than in the previous year. Worse still, a number of new issues accompanied by high expectations caused investors to suffer substantial price losses. With only four IPOs, new issue activity in Germany slumped disproportionately by around 76% compared with the previous year. Three stock market candidates had to abandon their plans during the placement phase. Seven stock market candidates withdrew the previously announced IPO. It can be safely assumed that the number of postponed or finally abandoned stock exchange plans is still significantly higher.

I. Difficult environment and excessive valuations weigh on the market for new stock issues in 2019

he global political and economic environment was like a millstone around the new issue market in 2019. Nevertheless, it would be too easy to justify the weak new issue activity solely on the basis of the general conditions, especially since all the major indices on the secondary markets worldwide have risen significantly. This leads to the conclusion that the company valuations of new issues in 2019 were often exaggerated.1 In addition, the poor performance of a number of IPOs from the technology sector, which were associated with high expectations and a high media presence, weighed on new issue activity. Above all, the IPO of the mobility service provider Uber, which was announced as the IPO of the year, took place on 10 May 2019. The issue volume of USD 8.1 billion was already well below expectations. On the day of the initial listing, the shares closed at 7.6% below the issue price of USD 45. At the end of the second day of trading, the price loss amounted to over 19%. At USD 29.74, the share price on the last trading day of the year was almost 34% below the issue price. Just a few weeks before Uber, its competitor Lyft generated USD 2.2 billion on 29 March. The issue price was USD 72 and the year-end price USD 43.02, 37.5% below the issue price. Finally, in the second half of the year, the disaster surrounding the IPO of the coworking start-up WeWork had a massive impact on investor confidence. While the company was still valued at around USD 47 bn in January 2019, the valuation for the planned IPO in October was only around USD 20 bn. Following the cancellation of the IPO, the highly acclaimed stock market candidate1 Cf. Kuckelkorn, Einfach zu teuer, Börsen-Zeitung of 13.12.2019 p. 1. as a restructuring case. It was only the massive intervention of the main shareholder Softbank that saved the company from insolvency.2 Worldwide, there were 1,115 new issues in 2019. That is roughly 19% less than in the previous year. The issue volume was around USD 198 bn (-4%). However, without the record IPO of Saudi Aramco with a placement volume of USD 25.6 billion (excluding Greenshoe), the issue volume would have been a good 16% lower than in the previous year. The new issue activity in Europe was significantly weaker than in the previous year with 143 IPOs (-37%) and an issue volume of USD 23 billion (-39%). There was a disproportionately strong slump in new issues3 in Germany. There were just four new issues4 on the Frankfurt Stock Exchange, two in the second quarter and two in the third quarter. Three new issues were listed in the Prime Standard and one in the General Standard. There was no successful IPO of a small or medium-sized company. The issue volume in Germany amounted to € 3.6 billion (previous year € 11.25 billion) and was thus still the second largest in Europe. Compared to the previous year, however, the slump in new issue activity in Germany was considerable. The number of new issues fell by more than 75% and the issue volume by around 68%. 2019 was thus the weakest year for new issues in Germany since the global financial and economic crisis in 2009.

II. Characteristics of new stock issues in Germany