Germany 2007 - Niche player expands
The promotion given by Deutsche Boerse to its rebranded Entry Standard junior market has boosted activity in Germany. Deal sizes have quickly accelerated to over €100m in some cases, with companies taking advantage of the greater flexibility and lighter regulation. One notable feature of these deals is that the lead advisers are often less familiar names – such as Equinet Securities. Owen Wild reports.
Equinet Securities has seen the average size of IPOs that it leads rapidly increase from around €20m to €125m. It is one of several firms that have benefited from an increase in activity on Deutsche Boerse's Entry Standard junior market. Others include Viscardi Securities, MM Warburg and Berenberg Bank.
MM Warburg and Berenberg are both private banks that are capitalising on their client base to win business, in a similar manner to the regional Landesbanks, but Equinet and Viscardi are different as they have grown out of other advisory roles.
Equinet was established in 1999 as an adviser to companies listing on the Neuer Markt. The level of activity then was even higher than today, and companies and banks were keen for advisers to prepare companies to list.
One important factor in their ability to win this business, and now to lead their own deals, is the background of the staff. The two main members of the corporate finance team in 1999 had lengthy bank backgrounds, one moving from Dresdner Kleinwort and the other from Commerzbank.
The company’s activity is now broader, with corporate finance, securities and research and sales groups. Also operating under the Equinet umbrella are venture capital and corporate communications businesses.
But the company has maintained a similar profile among its staff. Corporate finance now totals 25, securities a further 35 and 30–35 in research and sales. Almost all of these employees have worked at much larger firms at an earlier stage of their career.
In addition to DK and Commerzbank other previous employers include Deutsche Bank, JPMorgan and PricewaterhouseCoopers. Equinet is deliberate in seeking employees who have experience of big firms as it shows clients that the firm can offer a high quality and professional service to the small-cap segment.
This has been boosted by the success in building up the company's research function. The company joined the European Securities Network of 10 European banks in 2005. This sees participants co-ordinating research and trading with a particular focus on small and mid-cap coverage. Equinet is now a well-ranked research house, with a top-five ranking from AQ Research for 2006 for its recommendations and two analysts appearing in the top five-German analyst ranking for the same period.
A notable factor of the Entry Standard is that deals can struggle, but according to Equinet, this is because banks are not adjusting their horizons in line with the size of deals.
"On smaller deals you have the issue of liquidity, so you need to additionally approach a certain investor base," said Arne Laarveld, managing director of Equinet. "These are not only deals for big fund managers like DWS and Threadneedle: you need to be accessing private asset managers, family offices and smaller insurance companies."
The dynamics of deals can change rapidly, from the larger deals of over €50m on the prime standard where it is easier to tap international investors, to smaller deals where small-cap funds can be interested, to those where it can become a club affair with up to 10 investors involved.
"On deals above €30m, sales people are all addressing the same kind of investors. We may have an advantage though as we in addition to Tier one investors like large investment funds and insurers have better access to accounts like special insurers, pension funds and family offices. Anyone can call DWS," said Laarveld.
Laarveld highlights that while issuance is now approaching levels seen during the Neuer Markt boom the dynamic has changed. Where once a company's success was defined by whether it was listed, financing is now more important. The venture capital and private equity industries have also developed, providing a further flow of small companies.
"There are many interesting companies in sectors like technology, autos and business services that offer something different for investors. The Entry Standard is important because many companies which exceed the minimum requirements will list there as it allows them to use German GAAP for accounting, rather than the more expensive IFRS," said Laarveld.
"Investors conclude that if it is an interesting company and business model and the management is good the choice of listing venue is not so important."