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On June 19 2012 it looked as if the ambition to list chemicals company Evonik would never be achieved. The previous day management, banks, and its two main shareholders – RAG-Stiftung and CVC Capital Partners – agreed to cancel the latest in a string of efforts to complete an IPO.
Failure, however, was not an option. RAG’s raison d’etre was to list Evonik and sell down its 75% stake through public markets, while CVC was reaching the natural end to any private equity firm’s investment cycle having acquired its 25% stake in 2008. The result was an IPO like no other. Indeed it represented a tiny 2.3% of the company and was completed in one day. This, however, followed a private placement that saw 12.2% of the company sold to institutions and giving a free-float from listing of a healthy 14.2%, rising to 14.5% with the greenshoe.
It was just three days after the cancellation in June when bankers from MainFirst Bank met with the company. Carsten Staecker, head of ECM advisory at the firm, remembers it was 2007 when he first met Evonik to discuss the subject of its IPO.
Evonik had hoped to float in 2011, when a deal size of €7bn–€8bn was mooted, but uncertainty in the markets was “poison” for an IPO, said RAG chairman and Evonik supervisory board chairman Wilhelm Bonse-Geuking when that plan was abandoned in September 2011. Frustration at the failure of the 2008 IPO plan was moderated by the subsequent sale of 25.01% to CVC.
“Shaking the dust off and taking another run at an IPO could have ended with them running into the same brick wall. We suggested they think again and proposed an alternative structure we had been working on,” said Staecker.
Each time Evonik considered a listing, it attracted enormous attention, while the significance of the deal and its size ensured that on each occasion there was a large group of bankers and lawyers involved. The June process included five bookrunners and two independent advisers.
The theory exists that a billion euro IPO is easier to price than one a tenth of the size as investors do not need to worry about size of allocations, liquidity in the aftermarket, research coverage, the volatility that comes from backing small companies, etc. But when investors are worried about the macroeconomic outlook, lack inflows into their funds and want to know the deal is covered before committing their own orders, a deal size of €3.5bn-plus becomes problematic.
MainFirst’s solution was to avoid the spotlight. A private placement process could involve many of the same investors as an IPO but control would be in the hands of the sellers rather than the buyers. Valuation would be affected due to the lack of listing initially, but that may be a small price to pay for certainty. It did not promise too much, but was confident enough to convince the company – at the expense of the existing bank advisers. Confidentiality was crucial so the other banks were excluded – most only knew the process was taking place when it was wrapped up in February.
In the event 12.2% of the company was sold by CVC and RAG to over 100 investors, of which Temasek, advised by HSBC, was by far the largest at 4.6%. A further 2%, plus 0.3% greenshoe, was sold by MainFirst and Deutsche Bank in a fixed-price placing the day before Evonik eventually made its debut on April 25. The fixed price of €32.20 valued the company at €15bn, giving an initial free-float of over €2bn.
It had taken nine months, but the unorthodox plan worked and the two major shareholders could finally see the exit. Neither seller will risk destabilising the share price by rushing for the exit, but unlike an IPO, no shareholder is locked up after the listing. This additional flexibility surprised rival bankers and it remains to be seen whether the fear of a jumbo placing at short notice – remember an IPO of over €5bn was once the plan – will hinder stock performance compared with benchmarks.
Observers remain cautious over the model used by Evonik. The market has improved substantially since the failed IPO last summer with specialty chemicals stocks up over 30% but while the IPO market is recovering, there has not been a float as large as that envisaged for Evonik. MainFirst is clear that this is not a model to be followed by others, but it does indicate an approach others could employ.
“This structure was bespoke for Evonik, but the theme holds true – linking investors up with companies without the pressure of public scrutiny and getting them engaged in a way disconnected from any pending offering. Any company considering listing should understand investor needs ahead of time and find fundamental, not momentum, investors,” said Staecker.
European ECM teams have led several private placements in the past year, including for Formula 1 and ISS, after floats were abandoned. Evonik took it a step further by making the listing part of the same process.