EMEA Equity Issue: Hella’s €430m IPO

IFR Review of the Year 2014
3 min read
Graham Fahy

The joy of winning the mandate to float a long-established high-profile company is short-lived when it comes with the caveat that the deal cannot be launched unless it is certain to complete. Europe’s traditional four-week IPO process offers no such guarantee, yet Hella’s founding family were clear – the float was strategically important but must be certain.

Citigroup – whose ECM team had precedent for successfully blurring the line between public and private with VTB’s US$3.3bn-equivalent capital increase in 2013 – worked alongside Bankhaus Lampe to combine the most desirable elements of public and private funding options to list the automotive lighting company.

Eighteen months of work resulted in a two-part process – a private placing followed by an accelerated IPO. Where private transactions often allow for taking short-cuts compared with the regulated and public route, this was a full IPO albeit in private; research, pre-marketing, management roadshows, and bookbuilding were all completed over six weeks with hand-picked investors.

The extended timing allowed for the participation of family offices, representing other German industrial families, which offer a long-term commitment but usually need more time to consider an investment than an IPO allows.

On October 31, Hella surprised the market with the placing of 11.1m new shares, sufficient to meet the 10% minimum free-float in Frankfurt, completed at €25 per share with a group of investors, around half of which were family offices. The following week, in an accelerated IPO the family sold 5m secondary shares at €26.50 per share, supplemented by a 750,000 share greenshoe that took the free-float to 15% when exercised on November 19.

Suneel Hargunani, head of EMEA equity syndicate at Citigroup, was heavily involved in marketing the deal as the whole sales team could not be wall-crossed and highlighted that in this case the innovation was for good reason and was well tested.

The private part of the deal was launched in mid-September, just as equity markets collapsed. The DAX lost 12.5% in 17 days from September 19 and many IPOs in Europe were pulled. Cancellations were not because investors were unwilling to buy, but because of doubts about whether those deals could succeed. The luxury of time and lack of pressure to be covered in days meant Hella was unscathed.

The family met investor concerns over liquidity by locking up shares representing 60% of Hella for 10 years, with the implicit signal that the free-float could soon reach 40%. This was underlined by a vision for MDAX inclusion that would require greater trading volume.

Hella has solved an age-old problem of how family-owned companies cope with succession. The family lacked a candidate to take over running the business so hired professional management and decided the capital markets would provide the best check on their performance. So it secured a rating, issued bonds and floated on the stock exchange.

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EMEA Equity Issue 2014