Initial public offering

Under an IPO ( initial public offering german, abbreviated IPO or stock market launch ) refers to the initial offering of the shares of a company on the organized capital market. The settlement of the IPO is usually carried out by the consortium, which consists of one or more investment banks (so-called underwriters ).

The opposite of an IPO is the going private or delisting.

• 3.1 The world's biggest IPOs
• 3.2 Largest IPOs in Germany
• 3.3 Largest IPOs in Switzerland

One of the main motives for an IPO to the company by issuing shares to supply new funds is (primary offering ). This capital is used on the one hand the financing of growth, on the other hand, the increase in equity. It can also open up the possibility of existing shareholders, own shares at a better price to sell as is possible with an investment in an unlisted company (secondary offering ). The company succession and spin- offs can be regulated through an IPO. Other reasons are to cover the growth-related capital requirement, reducing the borrowing costs by improving credit, increasing the level of awareness, increasing the attractiveness for employees and managers and the increasing competitiveness. Usually several motivations are to be found simultaneously in IPOs.

Expiration

Examination of an IPO

An IPO is a very time intensive process that requires a year on average, and a very expensive operation if it is once started. A necessary prerequisite is a corporation as a business form in Germany thus Aktiengesellschaft (AG), European Company ( SE) or a partnership limited by shares ( KGaA). Yet there is no stock corporation, must be carried out appropriate corporate actions in the run-up to the IPO (eg conversion ).

Why would a company before it responds banks, first of all check if there is any already ready to go public. As companies probably have often rarely have the necessary know -how internally, there is the opportunity to seek an external and bank - independent IPO consultant who takes over.

The actual market maturity test is made up of various individual steps:

• Summary of internal company data and numbers
• Industry, product, and competitive analysis
• Peer Group Comparison with already listed companies
• Current market environment, trends and reviews
• Company Reviews by various methods
• Strengths and weakness analysis

The aim is to estimate the market maturity of the IPO candidates. In addition, the presentation of the current enterprise value also specifies the possible inflow of capital through the stock market.

The IPO consultant can also then still be working for the IPO candidates to control the entire IPO process to monitor and accelerate. Very often, it also helps to negotiate more favorable terms. Thus, the management is not only relieved, but also the entire IPO costs reduced slightly.

Selection of underwriters and committing the transaction structure

Prior to the IPO discussions with various banks are taken up by the existing shareholders as a rule, in which to gain this through discussions with management, company tours, and analysis of future plans submitted in the form of a business plan or fact books of the company a first impression about the company.

This is followed by the so-called beauty contest, in which to apply the emission departments of banks make offers on their respective asking prices and conditions to the accompaniment of the IPO. In general, these compensation terms are between four and six per cent of the issue size.

Upon completion of negotiations, the condition existing shareholders typically hire a bank as lead manager and often participate more next to banks in the planned emission.

Before, during or after this selection process, the transaction structure of the IPO is determined jointly with the participating underwriters. Here, on the one hand the desired or expected of investors in terms of geographic origin and type (eg, employees, retail investors, financial sponsors, investment funds, sovereign wealth funds, etc. ) and estimated first determinations made. This can be, for example preferential allotment at a discount (discount ) for employees and small investors.

Also, important conditions such as sales restrictions in the immediate period after the IPO for certain groups of shareholders (English lock-up period, eg for the shares selling party or the management ) defined.

Presentation of the company

As a result, the bank can conduct due diligence to investigate the one hand, the legal, on the other hand the economic and organizational circumstances of the enterprise risks and potentials. In general, the audit of the company in a legal due diligence and financial due diligence is split, which focus on the one hand, legal and economic situation on the other. Accountants take over here usually the test and, at the end of a corresponding comfort letter with which they vouch for the accuracy of the figures and stick often. Due to the large scope of the tests and the cost of the liability risk is, these costs a not insignificant part of the cost of an IPO dar.

The diligence as Due Report designated audit reports are not usually published, its contents, however, brings together the business plan and a market and peer group analysis essential for the design of argumentation framework ( the equity story ), which at the capital market participants for the investment is advertised at. This concept, in turn, provides a basis for the legally binding prospectus, which is available to all investors. The prospectus, the contents of which is regulated by an EU Directive, one of the conditions for the application for admission to trading on the selected stock exchange, which is proposed for a particular market segment.

Establishing their initial financial analysis

Through their independent (financial) analysts, the consortium banks can now finance studies, so-called research reports, create, describe the market position and market potential of the company. This research reports in addition to a general description of the company including history, current trends and competitive analysis especially discounted cash flow analyzes and opportunity as well as risk assessments. (Also called initial coverage ) Just this first research reports often include a hundred pages in which the company consider all sides of the financial analysts. The then finished research reports are intended to give an idea of ​​what would be a fair market value for the company, and thus represent an indication of how high to set the issue price.

Theoretically, the analysts consider independent of the perceived by the Issue Department of the Bank business interests to become involved in the issue; one refers to the Chinese Wall that separates analysis and emission departments.

Since financial analysis often run the risk of being interpreted as a buying offer and thus involves a substantial risk of liability, unless the independence of analysts is questioned, they are often distributed in the phase of the IPO, only very sparse to selected investors. After some banks were taken by research reports in respective prospectus liability, many banks have become so cautious that the brochures distributed to any person in the United States, nor be provided as a file available, but often designed numbered at events and collected again at the end.

IPO communication

In most cases, an IPO candidate is on the capital markets still quite unknown. Although the products can be known and appreciated, but very often the company has never been published in the past, corporate figures and / or had regular contacts with financial journalists. And just these are the last section of the IPO phase write articles about the company, their plans and medium-term opportunities and possibly make recommendations. The necessary facts must first be compiled and optimized structure once, in order then to make a press kit and on the new Investor Relations page of the company available.

Even with these tasks, the IPO company has the opportunity to seek an investor relations consultant, who not only takes the data processing, but also writes all press releases, published and organized a press road show in the immediate run-up to the IPO. Partly also advertising is switched to and thus to draw attention to themselves.

The aim is to make the company known in the capital markets and prepare the necessary facts to all interested parties and spread. In order to reach a positive media exposure, which is used by private and institutional analysts and investors.

A successful IPO communication increases the placement opportunities and has a positive impact on the amount of the offer price and thus on the inflow of funds from the company.

Roadshow and bookbuilding

Now the roadshow and bookbuilding process, and depending on the design of the timetable, the road show can begin even before the bookbuilding as a pre- marketing starts. Under Presentation of the equity story and the research reports, the banks first try in the so-called pre-marketing phase to attract institutional investors for the purchase of shares from the emission volume. In the following book-building phase, these efforts usually intensified together with the members of the company whose shares are to be issued in the so-called road shows and evaluated the interest of potential buyers.

Determination of the issue price

Already at the beginning, but lately also increased until the end of the roadshow is then announced by the banks, the so-called price range, ie the range within which the issue price is set conjectural. Alternatively, a so-called fixed price determined or the issue price will be determined through an auction process. The latter was, for example, the IPO of Google Inc. the case, but is rarely practiced. Critics of the auction process are of the opinion that a conventional bookbuilding allows the issuer a " softer " market entry, while proponents believe that can be achieved by auction method, the maximum rate for businesses and selling shareholders.

And allotment of the securities

After the announcement of the price range, the shares during the subscription period will be offered to the public for subscription, with the interested potential buyers specify mandatory as to how many shares they want at what maximum price purchase. It also talks of " drawing Invitation" by the banking consortium to potential buyers. The drawing of the offered shares is primarily about participating in the syndicate banks ( underwriters ) possible. However, many banks also offer the acceptance and forwarding of subscription orders. In this case, collects the corresponding ( non- syndicated ) bank their customers' orders and transmits them to one of the underwriters.

If the interest is greater than the number of shares offered, then one speaks of an oversubscription. In this case, set the underwriters determine whether to spend from the so-called green shoe, a reserve pool, additional shares, and determine the allocation is determined by which customer will be rewarded with what allocation ratio of the subscribed shares. In particular, since the underwriters mostly preferred serve the orders of their customers with high over-subscription of the shares offered, the likelihood of successful drawing is higher when the subscription order is given directly in a syndicate.

For subscription and allocation of shares in initial public offerings, banks often charge additional fees. The Federal Court here noted in 2003 that this subscription fee is well justified.

Listing & Settlement

After the order books were closed, the assignment of the shares and the final determination of the issue price, if this has not been done before. This price must be grudge accordingly in the prospectus. Then the shares are registered in the commercial register. Once this is done and there is a corresponding finally approved prospectus, the IPO can take place. With this initial listing, the shares were first traded on the stock market, and it is the first time a market price, the so-called initial listing found. As a result, accepts one delegated bank, often the original consortium ( lead manager ), the role of the Designated Sponsor, which it undertakes to keep the stock is traded.

After-market / price support / Ongoing Investor Relations

Often the Designated Sponsor assumes immediately after the IPO for a certain period (eg one month from initial listing ) to the stabilization of the stock, for which he can fall back on the allotment as available mass. Find persistent share buybacks to keep prices stable place in this context, the allotment may result in be lower than originally planned IPO.

Since the conducting transactions that are likely to cause an artificial price level, according to § 20a para 1 German Securities Trading Act is actually forbidden, it is in this type of price regulation, if it is announced in the IPO prospectus, one of the exceptions of § 20a Abs. 2 of the WpHG.

Very often it happens that the first stock market price is above the issue price. The behavior of the issuer, which apparently give so money is referred to in the financial market theory as underpricing and examined.

If a company is finally listed, so working with the corporate finance departments of the consortium ends. From then on, the Management Board is established on at the organization and implementation of all compulsory and freestyle investor relations activities. For large companies, it is clear that a separate IR department is worthwhile, but in small and mid - caps, there are not daily IR queries and tasks, so that it may be better to look for an external IR consultant and work with him.

It is especially important after the IPO, not to leave a contact and information hole may form. During the road show, the Management Board has "only" visits the customers of the consortium and placed his shares there. But now it is important to find new analysts and investors, and to win them over to the medium term to obtain an interest in the shares. Likewise, on the information page of the Info - flow should not be interrupted. In addition to the mandatory publications such as quarterly reports, there are many ways to attract new analysts and financial journalists.

An IPO candidate, therefore should be during the IPOs aware already, how and with whom he then organized his Ongoing IR activities. A successful IPO is not completed with the placement of shares, but can only be seen in the success of the first year for stock markets: The company is very often performed in magazines in racing lists, that is, the stock performance remains transparent for a year. In addition, a professional IR now also prepares the ground for further corporate actions in the future.

The largest IPOs

World's largest IPO

Biggest IPOs in Germany

The values ​​shown are the new issues on the first trading day.

Biggest IPOs in Switzerland

The values ​​shown are the new issues on the first trading day.

Market development

The number of IPOs reached between 1999 and 2000 worldwide peaked and then went as a result of the collapse of the stock market bubble in 2001 sharply. At the Frankfurt Stock Exchange with 166 initial listings the historic all-time high reached in 1999, with 142 IPOs in 2000 was still at almost the same level. 2006 there were 74 new issues. After proceeds from the highest value was reached, however, in 2000 with 26.6 billion euros. According to the German Stock Exchange, the revenues from the offered shares developed as follows:

Reverse takeover

As a reverse takeover, reverse IPO or initial public offering through the back door, an IPO is referred to, in which a company will not be traded by a direct exchange listing on the stock exchange, but indirectly, through the merger with or acquisition by an already -listed public company traded is. By a previously -listed company in a listed company is connected and get the owners of the former corresponding shares in the listed company, private company owners can use this road as " exit strategy " with which they have a very in the best case for the previously owned company liquid share obtained by the transaction. Compared with a normal IPO can be such a transaction carried out in a much shorter time window, as many otherwise necessary requirements omitted.