2020 — a good year for M&A and IPO activities

There was plenty of liqui­dity and inte­rest for IPOs in the market in 2020 despite Corona: global IPO proceeds increased 42% from $233 billion in 2019 to $331 billion in 2020. In the U.S., IPO volume even increased by 118% to USD 127 billion while in Germany it decreased from EUR 3.5 billion in 2019 to EUR 1.1 billion in 2020. 2020 was thus the weak­est German IPO year since the finan­cial crisis.

These figu­res clearly show why it often makes more sense for German compa­nies, espe­ci­ally tech­no­logy compa­nies like VIA optro­nics, to go public in the USA than in Germany: (i) demand is stron­ger, (ii) the under­stan­ding of and inte­rest in ambi­tious compa­nies are grea­ter and, as a result, are (iii) valua­tions are much more attrac­tive from a corpo­rate perspec­tive. In addi­tion, when choo­sing a stock exch­ange loca­tion, a company must ask itself where the so-called peers (compa­ra­ble compa­nies) are best. In the case of VIA optro­nics, many custo­mers either operate in the US or are listed in NY. The ques­tion of the liqui­dity of a stock exch­ange is also rele­vant, espe­ci­ally after an IPO — after all, the share is suppo­sed to “turn” afterwards.

I anti­ci­pate further growth in IPO markets in 2021, parti­cu­larly in Asia (Singa­pore, Hong Kong, Tokyo) and North America (NY). In terms of themes, I see growth areas in SPACs, life scien­ces R&D compa­nies due to the current pande­mic, and compa­nies with a prono­un­ced ESG focus. Further­more, tech­no­logy compa­nies, all kinds of cloud plat­forms become inte­res­t­ing IPO candi­da­tes. Howe­ver, I also believe that the volu­mes per IPO, so-called IPO proceeds, will decline in 2021 and are likely to be well below €500 million on average.

“Our” year 2020 has been very simi­lar to the stock market year 2020: a promi­sing start in the first two months was follo­wed by a quick “on-hold” for tran­sac­tions in the first half of the year. The reason was the great uncer­tainty with the (i) hand­ling of the pande­mic and espe­ci­ally (ii) the resul­ting conse­quen­ces, which ulti­m­ately leads to (iii) led to ambi­gui­ties regar­ding finan­cial viabi­lity and company values. Conse­quently, the projects were not cancel­led, but there was simply no market approach and little nego­tia­tion with direct cont­acts. Howe­ver, work on the tran­sac­tions contin­ued in the back­ground. Then, start­ing in August, we saw a catch-up in tran­sac­tions. In 2020, inves­tors paid very close atten­tion to sustainable busi­ness models and were also very cautious and conser­va­tive in their company valua­tions. With a few excep­ti­ons, multi­ples went down by about a multi­ple factor of 0.5 across the board — in sectors where we saw 9.x as a multi­plier before the pande­mic, it was more like a factor of 8.x afterwards.

With six M&A tran­sac­tions and two IPOs and private place­ments, we ulti­m­ately had a successful year. In addi­tion, we at Kloep­fel Corpo­rate Finance used the year to selec­tively streng­then our team and open another loca­tion in Frank­furt, along­side Düssel­dorf and Munich.

The entire indus­try expects a sharp increase in “distres­sed deals”: Credit­re­form CEO Volker Ulbricht speaks in the daily news of 24,000 insol­ven­cies or more in 2021. In this respect, there will certainly be enough tran­sac­tion projects for the M&A commu­nity specia­li­zing in this area. “Distres­sed, howe­ver, is not our focus. At Kloep­fel Corpo­rate Finance, we focus our M&A busi­ness on healthy compa­nies and entre­pre­neurs who are either looking for an exit or want to streng­then their compe­ti­tive posi­tion through acqui­si­ti­ons. The vast majo­rity of our mid-cap sell side manda­tes (€ 30–250 million) are proprie­tary, i.e. initia­ted by the shareholders/families. Many entre­pre­neurs, even the successful ones, have expe­ri­en­ced 3 major crises in the last 20 years: the “new market” crisis, the “finan­cial crisis” and now the “pande­mic” crisis — this wears down most seaso­ned CEOs. These entrepreneurs/shareholders also get to thin­king and consider selling without distress and with a steady hand.

We are curr­ently mana­ging seve­ral buy and sell manda­tes from various, mostly struc­tu­rally attrac­tive indus­tries and markets and expect a slightly posi­tive deve­lo­p­ment in tran­sac­tions this year. High liqui­dity, contin­ued very low inte­rest rates, an incre­asing number of cross-border deals, a large number of “looking” finan­cial inves­tors and successfully mana­ged compa­nies will conti­nue to drive this deve­lo­p­ment in the coming 12 months.

About Dr. Heiko Frank

Dr. Heiko Frank, who holds a docto­rate in busi­ness admi­nis­tra­tion from the Univer­sity of Augs­burg, has been working in the field of corpo­rate finance for more than 20 years. For many years, he has assis­ted a large number of family busi­nesses, corpo­rate enti­ties and family offices in the purchase & sale of compa­nies and parts of compa­nies. With nearly 30 years of expe­ri­ence in profes­sio­nal services, Dr. Heiko Frank has signi­fi­cant entre­pre­neu­rial and consul­ting expe­ri­ence, inclu­ding serving on the board of a global M&A group and as a board commit­tee member at a publicly traded consul­ting firm. He is a member of the super­vi­sory board of four medium-sized compa­nies and a commer­cial judge at the Augs­burg Regio­nal Court. Dr. Heiko Frank is Mana­ging Direc­tor and Co-Foun­der of Kloep­fel Corpo­rate Finance GmbH.

About Kloep­fel Corpo­rate Finance

As one of the main busi­ness units of the Kloep­fel Group, Kloep­fel Corpo­rate Finance specia­li­zes in corpo­rate tran­sac­tions and finan­cing. Our focus is on mergers & acqui­si­ti­ons in the small and mid cap segment. We advise and support natio­nal and inter­na­tio­nal compa­nies in their tran­sac­tional needs, both on the sale and purchase side. Rela­ted finan­cing requi­re­ments are also a focus of our service.