IPO: Week makes a difference for Deutsche Annington
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IPO: Week makes a difference for Deutsche Annington

Deal halved and relaunched after being pulled; robust investor appetite for alpha generation.

Rolf Buch, CEO, Deutsche Annington

When Germany’s largest residential real estate firm Deutsche Annington, headed by Rolf Buch, pulled its long-awaited IPO in the wake of the late May volatility, it seemed to be yet another casualty of Europe’s fickle IPO markets. When, however, the deal was successfully revived just one week later, it was an encouraging sign that there is robust appetite for sponsor-backed IPOs in the region. Saul Nathan, global head of the financial sponsors group at Morgan Stanley, which coordinated the deal with JPMorgan, explains that Federal Reserve president Ben Bernanke’s testimony about quantitative easing during the marketing period prompted a material change in market backdrop. "We were working against conditions that were deteriorating," he tells Euromoney.

The deal got away only after being slashed from an original target of up to €1.2 billion to €575 million, with shares priced at €16.50 from an initial range of between €18 and €21. Some 34.8 million shares, a 15.5% stake in the company, were sold. Despite its reduced size, the deal enables the firm to repay in full noteholders in its troubled Grand CMBS transaction – one of the largest commercial real estate deals ever completed in Europe.

Despite the substantial change in terms, bringing the deal back to the market within such a short time frame is unusual in the typically less flexible EMEA markets. Morgan Stanley’s Nathan notes that the fact the deal was backed by a financial sponsor – Guy Hands’ Terra Firma – contributed to the fast turnaround, saying that "sponsors are financially sophisticated and aware of what’s going on in the market".

This is crucial with the volatility that characterizes the market’s new normal, and links to the broader trend of increased private equity-backed IPOs that has been seen in Europe recently. Although sponsored IPOs have been up on both sides of the Atlantic – according to an Ernst & Young report, the $7.1 billion raised globally in the first quarter of 2013 is a 30% increase on the fourth quarter of 2012 – the growth has been more pronounced in EMEA.

PE buyout-backed IPOs/follow-ons By region, 2006 to 2013 year to end May

During the first quarter private equity-backed deals in the region raised $3.4 billion, already more than twice the $1.3 billion raised in total in 2012. In the second quarter of 2013, seven of the top-10 European IPOs were sponsored by private equity firms, and private equity-backed IPOs accounted for almost 60% of total proceeds. Beyond the Deutsche Annington IPO, other notable private equity-backed deals in EMEA include the listing of esure Group in London, with gross proceeds of just over $1 billion; the flotation of Platform Acquisition Holdings in London, which raised $682 million; and the listing of Matas on OMX, raising about $330 million.

All of these have achieved gains since listing, and – with the exception of Moleskine and Evonik Industries – private equity-backed IPOs have maintained their price. Offerings on the London Stock Exchange have also largely outperformed the FTSE index. Deals have spanned markets across the region: London, Euronext, Deutsche Börse, OMX, Borsa Italiana and Borsa Istanbul.

The rebound of sponsored IPOs in Europe is a positive sign for the region’s equity markets. "There is investor appetite for new stories of alpha generation that we haven’t seen in a while," says Nathan. He says that investors are ready, businesses are in shape for IPOs, and valuations are more attractive.

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