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IPO Readiness in Germany



IPO readiness

An initial public offering is a landmark step in the history of a company. In recent years, we have seen a solid number of IPOs in Germany, not only of younger e-commerce businesses but also of very established businesses. An IPO is highly attractive, not only for the issuer, but also for the shareholders and management and employees. The issuer might utilize the capital markets to raise fresh money, not only through the IPO itself, but also through future capital increases and the issuance of notes. Shareholders may partially exit and usually benefit from an increase in the share price going forward, and for management and employees it’s highly attractive to work for a publicly listed company.

What size should a company have when heading for an IPO?

I get a lot of questions regarding the size a company heading for an IPO should have. Revenue is important, but it’s not decisive. It’s the valuation of the company and the offer size that matters. The valuation depends on the equity story, which is built on the past financials and the KPIs. One should also consider weighing costs and benefits. Costs of an IPO are very high independent of the size of the company. Manpower and management attention are required. The issuer has to build investor relations and a legal department in order to comply with the capital markets obligations going forward, which are quite substantial.

What about the financials of a company heading for an IPO?

One of the key aspects to assess the IPO readiness of the company are the financials of the company. Generally, the consolidated financial statements of the past three years need to be shown and discussed in the IPO process and included in the IPO prospectus. In addition, one has to consider whether IFRS accounting standards have been applied. This is a prerequisite not only for the listing going forward, but also with respect to the last two years prior to the listing. Add-ons to the IPO group may be covered through combined financials, which usually need to be newly drafted and audited. In addition, no comprehensive quantitative forecast is permitted unless certified by an auditor. Therefore, the valuation of the company should enable the investor to build its own future business model.

What is the corporate set-up a company needs for an IPO?

The company has to be made ready for an IPO. The preparation of an IPO takes four to six months depending on the corporate setup and the financials of a company. This includes, inter alia, the preparation of the IPO documents and the change of the legal form of the company. The legal form of the company needs to be changed into a stock corporation ready to IPO. This requires the establishment of a supervisory board and the draft and/or amendment of the corporate documentation to be aligned with the German law and the German corporate governance codex. In addition, it might be necessary to amend the capital structure, which might require an increase in share capital, either through the conversion of shareholder loans or the conversion of company reserves. Also, the financing structure of the company needs to be considered and possibly amended.

I was fortunate enough to advise on some of the major IPOs in Germany over the last couple of years. At Kirkland & Ellis, we offer the entire range of capital markets advice. I am very much looking forward to supporting issuers and shareholders in the upcoming years on their landmark step towards an IPO.