Chasing giants: German IPO bankers hope for big 2023 deals in absence of the Mittelstand issuance

Data Insight ECM Explorer 11 November

Chasing giants: German IPO bankers hope for big 2023 deals in absence of the Mittelstand issuance

German ECM bankers are continuing to chase illusive mega-deals in 2023, hoping that one or two large transactions, like the IPO of Porsche AG [ETR:P911] this year will save the day, but many bankers continue to bemoan the lack of mid-cap issuance.

Porsche’s listing was an anomaly - a popular and historic name in motor manufacturing, with idiosyncratic qualities that few could replicate. There has been little German IPO progress since.

“At the moment it’s just pipeline work and nothing to execute. Porsche was its own beast, and it was unlikely to reopen the market,” an ECM banker said.

A lack of movement on IPOs in 2022 leaves an overcrowded pipeline full of deals, many of which could have valuations of more than EUR 1bn, spanning candidates in industries going from tech to financial services and energy. But bankers are once again hoping for a big-ticket IPO for work in 2023 rather than a steady stream of mid-cap candidates like can be depended upon in other markets.

According to Dealogic data, Germany has had 68 IPOs since 2017 worth around USD 43bn, with USD 1bn IPOs making up for 74.7% of the total deal volume. Around 20.5% of German IPO volume since 2017 has come from the Porsche IPO alone.

By contrast, the UK has had 438 IPOs since 2017 worth around USD 67.3bn, USD 1bn plus deals have only contributed around 32% of the UK’s total IPO volume since 2017, showing a far healthier mid-market than Germany, despite the country’s famous Mittelstand of high-quality mid-cap corporates.

In France. there have been 100 IPOs since 2017 worth USD 13bn, with USD 1bn plus deals making up around 34% if total issuance volume, showing a similar split between mid and large-cap IPOs as the UK.

“We have a very good and proud Mittelstand and good lending facilities for our economy, so an IPO is not the target for all of them,” the same ECM banker said.

There are some large on the cards for 2023, including Thyssenkrupp’s [FRA:TKA] hydrogen division Nucera that had been a hot pick for 2022, but pulled any potential offering based off valuation concerns, this news service previously reported.

There is also Cheplapharm, the German family-owned pharmaceutical company. But that now has sufficient capital to pursue its growth strategy in the short- to mid-term following a new private funding round, however an IPO remains on the cards in the future, the company spokesperson previously told this news service.

Cheplapharm attempted a EUR 750m launch in January 2022, but withdrew the deal citing rising market volatility, this news service previously reported.

Eyes are on other opportunities, halfway through a holding standpoint and a dual track scenario. LR Health & Beauty, backed by Quadriga Capital, is still pondering which way to take between a private sale and an IPO.

Once again there are deals in the pipe, but the great problem for Germany’s IPO market is that the country is simply far more dependent on large cap corporates for its IPO issuance than any other major equity market in Europe and while in some years you can depend on a Porsche to save the day, it isn’t something you can always depend on. It does not have the volume to keep bankers who miss out on the deals busy and won’t until more of the Mittelstand can be persuaded to go public.

“You have these three or four big mandates in Germany every year that you just need to be on,” a second ECM banker said. “It is difficult when you miss one.”

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