initial public offering
Under a public offering ( english stock market launch or going public ) which is listing of the shares of a company in an organized capital market understood. Here, if also shares from the holdings of existing shareholders or a capital increase offered is from a initial placement spoken (English, initial public offering , IPO ), otherwise (Engl. A "cold IPO" cold listing ). More Sale of existing shares of the company are secondary offering (Engl. Secondary public offering ) called.
The opposite of an IPO is an IPO ( delisting , also going private ). A new IPO is then possible, which is also called a re-IPO in connection with a share offer .
One of the most important motives for going public is to inject new financial resources into the company by issuing shares (primary offering). This capital is used to finance growth on the one hand and to strengthen equity on the other . It can give existing shareholders the opportunity to sell their own shares at a better price than is possible with shares in a non-listed company ( secondary offering ). The company succession and spin-offs can be controlled through an IPO. Other reasons are to cover growth-related equity capital requirements, to reduce borrowing costs by improving creditworthiness , to increase awareness, to increase attractiveness for employees and managers and to increase competitiveness . Often several motivations can be found at the same time when going public.
Process of an IPO with a share offer (IPO)
Examination of market maturity
Going public is a very time-consuming process that takes an average of a year and a very expensive undertaking once started. A necessary prerequisite is a stock corporation as a corporate form, in Germany this means a stock corporation (AG), European company (SE) or partnership limited by shares (KGaA). If there is not yet a stock corporation, appropriate corporate law measures must be taken in advance of the IPO (e.g. conversion ).
Therefore, before approaching banks, a company should first check whether it is already ready for the stock market. Since companies often only rarely have the necessary know-how internally, there is the possibility of looking for an external and bank-independent IPO advisor to take over this.
The actual market maturity test is made up of various individual steps:
- Summary of internal company data and figures
- Industry, product and competition analysis
- Peer group comparison with companies that are already listed
- Current stock market environment, trends and evaluations
- Company valuations using various methods
- Strengths and weaknesses analysis
The aim is to assess the IPO candidate's maturity. In addition, the presentation of the current company value also specifies the possible inflow of capital via the stock exchange.
The IPO advisor can still work for the IPO candidate afterwards in order to control, monitor and accelerate the entire IPO process. Very often he also helps to negotiate more favorable terms. This not only relieves management, but also slightly reduces the entire IPO costs.
Selection of the issuing banks & definition of the transaction structure
Before the IPO, the existing shareholders usually start discussions with various banks , where they get a first impression of the company through discussions with management , company tours and analysis of the future plans presented by the company in the form of a business plan or factbook .
This is followed by the so-called beauty contest , in which the issuing departments of the banks apply for support for the IPO by submitting offers about their respective price expectations and conditions. These remuneration conditions are often between four and six percent of the issue volume .
After completion of the condition negotiations, the existing shareholders entrust usually a bank as lead manager and next to participate more frequently banks to the planned rights issue.
Before, during or after this selection process, the transaction structure of the IPO is determined together with the syndicate banks involved. On the one hand, the intended or expected group of investors in terms of geographic origin and type (e.g. employees , small investors , financial sponsors , investment funds , sovereign wealth funds ) is assessed and initial determinations are made. This can, for example, preferential allotment at a discount ( discount ) for employees and small investors to be.
Important framework conditions such as sales restrictions in the immediate time after the IPO for certain groups of shareholders ( lock-up period ; for example for the party selling the shares or the management) are also defined.
Presentation of the company
As a result, the bank has a due diligence carried out in order to examine on the one hand the legal and on the other hand the economic and organizational conditions of the company for risks and potentials. As a rule, the examination of the company is divided into a legal due diligence and a financial due diligence , which focus on the legal on the one hand and the economic situation on the other. Auditors usually take over the examination and at the end issue a corresponding comfort letter with which they vouch for the correctness of the figures and are often also liable. Due to the large scope of the tests and the costs for the liability risk, this cost block represents a not inconsiderable part of the costs of an IPO.
The audit reports known as due diligence reports are usually not published, but their content, together with the business plan and a market and peer group analysis, play a key role in shaping the argumentation concept (the equity story ) with which capital market participants use for the investment is advertised at. This concept in turn forms the basis for the legally binding stock market prospectus , which is made available to all investors. The stock exchange prospectus, the content of which is regulated by an EU directive, is one of the prerequisites for the application for admission to trading on the selected stock exchange that is being applied for for a specific stock exchange segment .
Creation of first financial analyzes
With their independent (financial) analysts, the consortium banks now have financial studies, so-called research reports , created that describe the company's market position and market potential . In addition to a general description of the company, including its history, current developments and competitive analyzes, these research reports also contain, in particular, discounted cash flow analyzes and opportunity and risk assessments. These first research reports in particular (also called initial coverage ) often contain around a hundred pages on which the financial analysts look at the company from all angles. The finished research reports are intended to convey an idea of what a fair market value would be for the company, and thus represent an indication of how high the issue price should be.
Theoretically, the analysts judge whether the bank should participate in the issue regardless of the business interests of the bank as perceived by the issue department . This separation of the analysis and emissions departments is called the Chinese Wall .
Since financial analyzes often run the risk of being construed as a purchase offer and thus involve a not inconsiderable liability risk if the independence of an analyst is questioned, they are often only very sparsely distributed to selected investors during the IPO phase. After some banks were held in prospectus liability by research reports, many banks have become so cautious that the prospectuses are neither distributed in the USA nor made available as a file, but are often numbered at events and then collected again at the end.
In most cases, an IPO candidate is still relatively unknown on the capital markets. The products may be known and valued, but very often in the past the company has never published company figures and / or had regular contact with financial journalists. And it is precisely these who should write articles about the company, its plans and medium-term opportunities and possibly make recommendations in the last section of the IPO phase. The facts required for this must first be compiled and optimally structured so that they can be accessed as a press kit and on the company's new Investor Relations page.
For these tasks, too, the IPO company has the option of looking for an investor relations consultant who not only takes care of data processing, but also writes and publishes all press releases and organizes a press road show in the immediate run-up to the IPO. Sometimes advertisements are also placed in order to draw attention to themselves.
The aim is to make the company known in the capital market and to prepare and disseminate the facts necessary for all interested parties. This creates a positive media presence that is used by private and institutional analysts and investors.
Successful IPO communication increases the placement chances and has a positive influence on the amount of the placement price and thus on the inflow of funds at the company.
Roadshow and bookbuilding
Now the roadshow and the bookbuilding process begins , whereby, depending on the design of the schedule, the roadshow can also begin before the bookbuilding as pre-marketing . Under notion of EquityStory and Research Reports banks first try in the so-called pre-marketing phase , institutional investors for the purchase of shares from the issue size to care. In the following bookbuilding phase , these efforts are intensified in road shows, usually together with the members of the board of directors of the company whose shares are to be issued, and the interests of potential buyers are evaluated.
Determination of the issue price
Already at the beginning of the roadshow, but also more recently towards the end of the roadshow, the banks announce the so-called price range , i.e. the range within which the issue price is presumably set. Alternatively, a so-called fixed price can also be determined or the issue price can be determined through an auction process. The latter was the case, for example, with the IPO of Google Inc. , but is rarely practiced. Critics of the auction process are of the opinion that conventional bookbuilding enables the issuer to enter the market “more gently”, while proponents are of the opinion that the maximum price for companies and selling shareholders can be achieved through auction processes.
Subscription and Allocation of Securities
After the price range has been announced, the shares will be publicly offered for subscription during the subscription period , whereby the interested potential buyers are obliged to determine how many shares they want to purchase at what maximum price. This is called a "subscription invitation" by the banking consortium to potential buyers. Subscribing to the shares offered is primarily possible via the banks participating in the banking consortium ( syndicate banks ). However, many banks also offer the acceptance and forwarding of subscription orders. In this case, the corresponding (non-syndicated) bank collects the orders from its customers and transmits them to one of the syndicated banks.
If the interest is greater than the number of shares offered, it is referred to as oversubscription . In this case, the consortium banks determine whether further shares are to be issued from the so-called greenshoe , a reserve pool, and determine the allocation , which determines which interested party is given which allocation rate of the subscribed shares. Since the consortium banks usually prefer to serve the orders of their own customers, especially when the shares offered are heavily oversubscribed, the probability of a successful subscription is higher if the subscription order is placed directly with a consortium bank.
Banks often charge additional fees for subscribing and allocating shares from new issues. The federal court has thereby established in 2003 that this subscription fee is justified.
Listing & Settlement
After the order books have been closed, the shares are allocated and the issue price is finally determined, if this has not already been done. This price must be added to the prospectus accordingly. Then the shares are entered in the commercial register. Once this has been done and there is a correspondingly finally approved securities prospectus , the stock market launch can take place. With this initial listing, the share is traded on the stock exchange for the first time, and a stock exchange price , the so-called initial listing , is determined for the first time . As a result, a bank commissioned to do so, often the original lead manager, takes on the role of designated sponsor , thereby undertaking to keep the share tradable at all times.
After-market / course maintenance / ongoing investor relations
Often the Designated Sponsor takes over the price maintenance of the share immediately after the IPO for a certain period of time (for example one month from the initial listing) , for which he can fall back on the greenshoe as disposable assets. If, in this context, share buybacks are constantly taking place to maintain the price, the result of the greenshoe can be lower than originally planned when the company went public.
Although carrying out transactions that are likely to bring about an artificial price level is prohibited under Article 15 of the Market Abuse Ordinance, this type of price maintenance under Article 5 of the Ordinance does not constitute market manipulation if it is announced in the stock exchange prospectus.
It very often happens that the first stock exchange prices are above the issue price. The behavior of the issuers who seem to give away money with it is called underpricing and investigated in financial market theory.
When a company is finally listed, the collaboration with the corporate finance departments of the consortium ends. From then on, the board of directors is on its own with the organization and implementation of all mandatory and optional investor relations measures. For large companies it is clear that it is worthwhile to have your own IR department, but with small and mid caps there are not daily IR inquiries and tasks, so it may be better to find an external IR advisor and work with him.
Especially after the IPO, it is important not to let a contact and information hole arise. During the road show, the board of directors “only” visited the consortium's customers and placed their shares there. After the IPO, it is important to find and win over new analysts and investors in order to maintain an interest in the share in the medium and long term. The flow of information should also not stop on the information side. In addition to the mandatory publications such as quarterly reports, there are many ways to address new analysts and financial journalists.
An IPO candidate should therefore already be clear during the IPO how and with whom he will organize his ongoing IR activities afterwards. A successful IPO does not end with the placement of the shares, but is only shown by the success of the first year of the stock market: The company is very often listed in racing lists in magazines, i. In other words, the share performance remains transparent for one year. In addition, a professional IR prepares the basis for further capital measures in the future at an early stage.
The biggest IPOs
World's largest IPOs
in billion US dollars
|11th Dec 2019||Saudi Aramco||25.6|
|19 Sep 2014||Alibaba Group||~ 25|
|Nov 18, 2010||General Motors||23.1|
|Jul 6, 2010||Agricultural Bank of China||22.9|
|Oct 20, 2006||Industrial & Commercial Bank of China||21.9|
|Oct 2010||AIA - AIG's Asian branch||20.5|
|Oct 22, 1998||NTT Mobile (now NTT DoCoMo)||18.4|
|18 Mar 2008||VISA||17.9|
|May 18, 2012||16.0|
Largest IPOs in Germany
in billions of euros
|Jun 19, 2000||Deutsche Telekom||13.0|
|Jun 28, 1999||Deutsche Telekom||10.8|
|Nov 18, 1996||Deutsche Telekom||10.0|
|Nov 20, 2000||German postal service||5.8|
|13 Mar 2000||Infineon||5.4|
|Oct 7, 2016||Innogy||5.0|
|16. Mar. 2018||Siemens Healthineers||4.2|
|Oct 12, 2018||Knorr brake||3.9|
|Apr 17, 2000||T-Online||2.87|
|Jul 2, 2007||Tognum||2.01|
|Jun 23, 2004||Deutsche Postbank AG||1.55|
|Oct 6, 2015||Covestro||1.5|
|Oct 30, 2012||Telefónica Deutschland Holding||1.45|
|Dec 11, 2006||Symrise||1.4|
|26 Sep 2014||Rocket Internet||1.4|
The value of the new issue on the first trading day is stated.
Largest IPOs in Switzerland
in billion CHF
|Nov 13, 2000||Syngenta||9.6|
|Oct 5, 1998||Swisscom||8.6|
|17th Mar 1997||Ciba AG||8.2|
|Nov 1, 1999||Lonza Group||5.8|
|Dec 11, 2001||Converium||2.9|
The value of the new issue on the first trading day is stated.
The number of IPOs worldwide peaked between 1999 and 2000 and fell sharply as a result of the collapse of the stock market bubble in 2001 . The historic all-time high was reached on the Frankfurt Stock Exchange in 1999 with 166 initial listings, and in 2000 it was still at almost the same level with 142 IPOs. In 2006 there were 74 new issues. In terms of issue proceeds, however, the highest value was reached in 2000 at EUR 26.6 billion. According to information from Deutsche Börse, sales from the shares offered developed as follows:
A reverse takeover , reverse IPO or IPO through the back door is an IPO in which a company does not become tradable through a direct listing on the stock exchange, but becomes tradable indirectly through a merger with or takeover by an already listed stock corporation. By joining a previously unlisted company to a listed company and the owners of the former receiving shares in the listed company accordingly, private company owners can use this route as an "exit strategy" which, in the best case scenario, makes them a very get liquid stock through the transaction. Compared to a normal IPO, such a transaction can be carried out in a much narrower time window, since many otherwise necessary requirements are not required.
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