Conference Magazine - GoingPublic.de - Deutsches Eigenkapitalforum

Corporate Financing
Mezzanine as a value driver for IPOs
Securing growth, corporate independence and potential for
value growth through near-equity bridge financing
The current financial landscape and its regulatory requirements
mean that companies are increasingly faced with the
prospect of financing their growth opportunities using a
substantial equity component. Various investors can
provide corresponding funds; however, for companies with
insufficient size in particular, the long-term financing base
this offers is only limited and demands a considerable
portion of the potential income generated. As a form of
bridging finance, mezzanine structures can be an attractive
interim solution.
The “Entry Standard”
Newer and smaller SMEs are often faced with a dilemma.
They need growth capital and equity in order to make
important major investments and acquisitions; in this
phase, however, they are often not yet ready to surrender
their independence and their potential for value growth.
Most of these companies are unable to access private
equity markets on account of their insufficient size and
the limitation to a minority interest. As such, the public
stock exchange is often the only way for SMEs to raise
equity from investors. To meet the needs of SMEs in
particular, Deutsche Börse launched the Entry Standard
as a transparency segment within the Regulated Unofficial
Market (“Freiverkehr”) in 2005. The aim was to make
it easier for young and rapidly-growing companies to
access the capital markets, particularly by imposing
fewer admission and publicity requirements compared
with the Regulated Market.
However, it must be
noted that the Entry
Standard is of only
limited interest to institutional
investors, particularly
those from
outside Germany, due
to the lower stock market
valuations at
present and the low
liquidity in the respective
securities. In many
cases, the internal
Figure 1: Mezzanine investors at a glance
Page 10 Deutsches Eigenkapitalforum 2012
statutes of investment funds also prohibit investments in
unregulated market segments. This means that there is only
a moderate base of primarily domestic investors for Entry
Standard IPOs, which serves to limit the cash generated
and the company’s valuation. On the other hand, the
companies in question do not have the necessary critical
mass to justify an expensive IPO on the Regulated Market
(Prime Standard). The effort and cost involved in an IPO is
often also disproportionate to the income/benefit
generated as a result.
German International Family offices
Volume EUR 5-15 million EUR 10-50 million EUR 5-20 million
Subordinated
collateral
Financial
covenants
No
For operational
monitoring, mostly
without right of
termination
Yes, subordinated via
inter-creditor agreement
For operational
monitoring, mostly with
right of termination
No
For operational
monitoring, mostly
without right of
termination
Term 3-7 years 5-10 years 5-10 years
Direct operational Limited, defined
influence
approval rights
Source: IKB Deutsche Industriebank AG
Dr. Jörg Schröder, Managing Director,
Head of Equity Capital Markets,
IKB Deutsche Industriebank AG
Limited, defined
approval rights
Olaf Schreckenberg, Vice President
Alternative Capital Markets,
IKB Deutsche Industriebank AG
Often a strategic
sparring partner