It was the 25th of April in 2013 when the newspapers headlined the successful initial public offering (IPO) of Evonik, the German chemistry company. “Evonik finally finds the right chemistry” reported the Financial Times whilst Reuters wrote “Evonik celebrates stock market premiere”. Prior to the successful listing in 2013, Evonik had postponed such transaction three times already, citing adverse market conditions as the reason. Adverse market conditions are widely used as the most common reason for withdrawing or postponing an IPO, with insufficient investor demand also being given as an explanation to not proceed with the transaction, as evidence by German real estate company Deutsche Annington.
Listing a company on a public stock market is not an easy task, but rather a very time consuming and expensive process. The most crucial part of the entire transaction is finding the right offer price at which company is offering its shares to investors. The aim of this paper is to explain and describe the IPO process in general, with a special focus of the techniques on how the issue price will be derived.
The thesis begins with a theoretical section describing and explaining the basic process of an IPO as well as clarifying basic definitions. Subsequently, the main techniques how the issue price is set will be explained and analyzed. The theoretical part is followed by a practical section, using the example of Evonik to analyze how its issue price was determined. The last chapter contains a final conclusion summarizing the findings of the paper.
Table of Contents
1 Introduction
2 Definition and theoretical procedure of an IPO
2.1 Definition
2.2 Theoretical procedure of an IPO
3 Options for determining the issue price for an IPO
3.1 Fixed Price procedure
3.2 Bookbuilding procedure
3.3 Auction procedure
4 The IPO of German chemistry-company Evonik
4.1 Case study
4.2 Critical evaluation
5 Conclusion
Objectives and Topics
The primary objective of this paper is to provide a comprehensive explanation of the Initial Public Offering (IPO) process, with a specific analytical focus on the various methods used to derive and determine the issue price for company shares. The work explores the theoretical frameworks governing market entry and applies these findings to a practical case study of a major German corporation.
- Theoretical fundamentals of IPO processes
- Methodologies for price determination (Fixed Price, Bookbuilding, Auction)
- Practical analysis of the Evonik Industries IPO
- Evaluation of post-IPO market performance
- Analysis of stakeholder influence and strategic market timing
Excerpt from the Book
3.2 Bookbuilding procedure
Since the mid-90s, the bookbuilding procedure has been the most commonly used method for setting the price for new stock offers. In the applied procedure, no fixed price is specified but interested parties can submit offers within a given price range.
First, the banks conduct exploratory talks with potential investors. In these talks the expected demand, how many shares at what price the investor is willing to invest, will be discussed. The results of the discussions with the investors form the basis for determining the price range, at which the shares will offered. Once the price range has been set, it will be made public and potential investors will be contacted.
In this stage of the process, the marketing phase, the company and the banks introduce the interested investors to the management of the company and provide more information on the structure of the transaction. This procedure is called roadshow, and forms the most curcial part of determining whether the deal is going to be successful. Coherently the so order-taking-phase or bookbuilding takes place, followed by the so-called subscription phase. The bookrunner records all subscription orders in an order book and thus has an overview of the demand at each subscription price of the defined price range. Analogous to the fixed price procedure, a certain exaggeration is sought here, so that a demand on the after-market/ secondary market can be assumed. At the end of the subscription period, the bookrunner closes the orderbook and submits all offers received to the issuer.
Summary of Chapters
1 Introduction: This chapter introduces the topic of IPOs, highlighting their complexity and cost, and outlines the research objective of examining price determination techniques through the lens of the Evonik case study.
2 Definition and theoretical procedure of an IPO: The chapter defines the core concept of "Going Public" and outlines the three fundamental phases of the process: preparation, implementation, and placement.
3 Options for determining the issue price for an IPO: This section provides a detailed analysis of three primary pricing methods: the Fixed Price procedure, the Bookbuilding procedure, and the Auction procedure.
4 The IPO of German chemistry-company Evonik: This practical section traces the historical attempts of Evonik to go public and evaluates the specific application of the accelerated bookbuilding procedure used during its successful 2013 listing.
5 Conclusion: The final chapter synthesizes the findings, noting that the bookbuilding method is the industry standard and emphasizing the critical role of market timing in the success of an IPO.
Keywords
Initial Public Offering, IPO, Bookbuilding, Fixed Price, Auction Procedure, Capital Market, Equity Story, Evonik, Stock Exchange, Share Valuation, Underwriting, Greenshoe Option, Primary Market, Investor Demand, Financial Due Diligence
Frequently Asked Questions
What is the core subject of this term paper?
The paper examines the procedural and financial aspects of Initial Public Offerings (IPOs) in Germany, focusing specifically on the methods used to set the issuance price for shares.
What are the central thematic fields covered in the work?
The core themes include the definition of IPOs, the theoretical phases of a stock market launch, specific pricing strategies like bookbuilding, and a case study of a major German chemical company.
What is the primary research question?
The paper aims to describe the general IPO process and provide a detailed analysis of the techniques and strategic considerations involved in deriving an appropriate issue price.
Which scientific methods are employed?
The author utilizes a literature-based theoretical analysis of financial processes and conducts a qualitative case study to evaluate the practical application of pricing mechanisms.
What topics are discussed in the main body of the paper?
The main body covers the definition of IPOs, the three-phase theoretical procedure (preparation, implementation, placement), three distinct pricing methods, and an analysis of the Evonik Industries IPO.
Which keywords best characterize this work?
Key terms include IPO, Bookbuilding, Capital Market, Share Valuation, and Financial Due Diligence.
Why did Evonik postpone its IPO multiple times?
According to the text, the postponements were primarily due to adverse market conditions and concerns regarding the undervaluation of the company.
What is the advantage of the bookbuilding process compared to fixed pricing?
The main advantage is its flexibility, as it allows the company to orient itself toward current market demand during the roadshow rather than relying solely on static forecasts.
What happened to the Evonik share price in the long term?
By July 2018, the share price had experienced a decrease of 3.2% compared to its initial performance, leading the author to categorize it as a rather unsuccessful listing.
- Quote paper
- Andreas Schmidt (Author), 2018, IPOs in Germany. IPO procedures, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/437694
