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German IPOs Set to Defy Sluggish Economy as Backers Seek Cash

(Bloomberg)

(Bloomberg) -- A growing number of German firms are gearing up to go public in the coming months despite worries over Europe’s largest economy, as pressure builds on buyout groups and corporations to realize value for investors.

The Frankfurt Stock Exchange has seen four initial public offerings so far this year raising a combined $2.2 billion, about the same level as this time last year, while far below that in 2021, according to data compiled by Bloomberg.

But the pipeline of potential deals and the positive performance of some of the latest IPOs are giving advisers hope that better times are near.

“While markets may remain difficult, we see good chances that a significant number of deals actually materialize,” said Carsten Berrar, co-head of Sullivan & Cromwell LLP’s global capital markets group, who advised on Springer Nature AG & Co KGaA’s Frankfurt debut last month.

While advisers expect private equity funds and companies to also seek buyers for their assets privately, IPOs are currently being lined up to ensure value is unlocked for investors.

The private equity owners of Stada Arzneimittel AG have hired additional banks to prepare for a listing of the German generic drugmaker after talks to sell the company to a rival buyout group cooled down, people familiar with the matter have said. Likewise, online car-parts dealer Autodoc SE, backed by Apollo Global Management Inc., has hired advisers for a potential Frankfurt float, Bloomberg has reported.

Meanwhile, German corporates looking to streamline their operations are also considering listing units. Continental AG has been pushing on with plans to spin off its division making car brakes and automated driving systems, despite recalls related to faulty braking systems it had supplied.

There may be other pockets of activity beyond those two issuer groups. The German government recently selected banks to arrange a potential selldown of Uniper SE after rescuing the energy group in the wake of Russia’s invasion of Ukraine.

Europe’s largest economy saw what officials referred to as “ray of hope” last week after Germany narrowly avoided recession in the third quarter of the year, with GDP growing by 0.2%. The good news was accompanied by a rise in inflation to 2.4%, raising questions over monetary policy in the eurozone.

German federal elections scheduled for next September may impact the timing of deals in the second half of 2025 if they’re seen to conjure volatility, according to Marco Carbonare, head of Linklaters’s German corporate division. But if markets hold up, next year may shape up to be a busy one for equity capital markets, he said.

“Subject to a benign stock market environment, 2025 is therefore expected to be a strong IPO year,” Carbonare said, adding that some technology companies may also consider going public.

Despite a sluggish economy, Germany’s flagship DAX Index has reached record highs this year. This is because the DAX’s dependence on the German economy is only limited, said Dominic Traut, a fund manager at Julius Baer, noting that investor expectations of a global soft landing had more influence.

As capital markets continue to recover, the next wave of IPOs is likely to feature stable, profitable firms and growth companies with strong technology, according to Clemens Rechberger, a partner at Sullivan & Cromwell. The question remains at what price.

“Large IPOs are possible in the market, but the market demands significant IPO discounts compared to already listed peers,” he said.

--With assistance from Isolde MacDonogh and Farah Elbahrawy.

©2024 Bloomberg L.P.