The mar­ket for new stock issu­es in Ger­ma­ny — 2019 a disap­point­ment

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

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