Regulatory requirements and bureaucracy as the main obstacles
In view of the ongoing IPO slump and delistings, DVFA asked which factors have most likely deterred companies in Germany from going public in recent years. A clear focus emerged here: overregulation (25%) and complex capital market requirements, such as disclosure or reporting obligations (24%), accounted for more than half of the cumulative multiple responses. The other half was split fairly evenly between the four other answers: too little demand because investors are increasingly focussing on passive products from the major indices and discretionary investments are on the decline (15%), insufficient secondary market liquidity (14%) and 11% each for too low valuations on the one hand and more attractive investment offers from venture capital or private equity investors on the other.
Market remoteness, overregulation and low valuations drive delistings
The survey also focussed on the extent to which the increase in delistings can be interpreted as a symptom of structural weaknesses in the German capital market. In line with the answers to the first question, more than one in three survey participants (34%) see delistings primarily as a symptom of market remoteness and overregulation and agree with the statement that the much-cited ‘chainsaw’ needs to be applied here. Then more companies would find their way back onto the trading floor. However, over a fifth (22%) of DVFA Investment Professionals recommend not overestimating the trend, as many companies are leaving the market due to the low valuation. The situation could change again after the next stock market upswing. A further fifth (21%), on the other hand, recognise the increase in delistings as a clear symptom of deeper, structural weaknesses. The German IPO market simply shows too little demand. However, for almost one in five of the respondents (19%), this trend is more cyclical in nature and mainly affects smaller stocks.
Private and strategic investors and foreign countries are often more attractive than IPOs in Germany
From the perspective of an IPO candidate, the DVFA investment professionals were then asked to assess which financing alternatives might currently appear more sensible than a German IPO. Once again, multiple answers were possible. Here, the strong increase in the importance of private equity (33%) and strategic investors (28%) in recent years was particularly clear, ranking first and second respectively. IPOs abroad, which are often easier and more attractive from a financial and tax perspective, came in third place with 22% of responses. Comments were also made on the often better coverage by analysts abroad, especially for small and mid-caps. In contrast, mixed forms of capital such as mezzanine or silent partnerships (10 %) and loans, i.e. debt capital from banks (7 %), were ranked lower as sensible IPO alternatives.
Prioritising measures aimed at the main causes
It makes sense to make a diagnosis in order to develop a therapy. The DVFA therefore subsequently asked about the essential measures needed to make IPOs in Germany attractive for companies again. Of the possible multiple answers, the clear majority were in favour of reducing regulatory requirements, bureaucracy and costs (almost 40%) and increasing the structural depth of the capital market, especially for equity issues (33%). At 13%, the importance of fragmentation and a counteracting consolidation of stock market segments pales into insignificance, as does the promotion of equity attractiveness through tax incentives for anchor investors (12%). Hardly any of the respondents consider a more active approach by the trading centres to be expedient (3%).
The prospects for the German IPO market: Challenging but manageable, primarily by politicians
Finally, the DVFA Investment Professionals were asked to assess the prospects for the development of the IPO market for high-growth companies in Germany.
In this crucial question, the optimists basically predominate, although some are somewhat sceptical. Just under a quarter of participants (23%) believe the outlook is rather gloomy: structural reforms are urgently needed here, but are probably not in sight. However, a strong quarter (26%) find the prospects quite promising (18%) or even rather positive (8%). The segment is suffering from the weak performance of small and mid-caps, and when these are booming, the IPO business also pulsates. This was clearly visible at the turn of the millennium. The decisive factor is the 51% who agree that although the prospects for the German IPO market are challenging, targeted measures, for example on the fiscal side, can set a positive trend in motion.
Illustration: How do you see the IPO market for high-growth companies in Germany developing in the future? Source: DVFA e. V.
“A functioning IPO market is central to the innovative strength of our economy. This requires fewer regulatory hurdles and a broader investor base,” explains Thorsten Müller with regard to the survey results. ‘Other countries are showing how it’s done: in Sweden, for example, a share-based pension scheme specifically promotes participation in the capital market, with positive effects for financial education and share culture.’
A stable and attractive stock market depends above all on sustained demand and sufficient liquidity. Stimuli could be provided by a tax-incentivised investment savings account, a pan-European pension product and regulatory simplifications for advice, prospectuses and liability, among other things.
‘The reform proposals have been on the table for a long time, now it’s the politicians’ turn to make Germany fit for the future as an IPO centre,’ concludes Thorsten Müller.
