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.