Deutsche Bank AG (DBK) and Goldman Sachs Group Inc. (GS:US) are among a group of banks that lost out on about 100 million euros ($129 million) in fees after Germany’s Evonik Industries AG ditched an initial public offering in favor of a private placement, said people familiar with the matter.
The decision by owners CVC Capital Partners Ltd. and RAG Stiftung to sell shares directly to institutional investors last week with the help of local brokerage MainFirst Bank AG came after three failed IPOs in five years. Evonik had sought to raise as much as 4 billion euros in last year’s attempt, led by Deutsche Bank and Goldman, according to one of the people, who declined to be identified because the talks were private.
Evonik’s move was an unexpected blow to the IPO advisers, which had counted on the sale being revived and ultimately getting paid for the work they had done preparing for the last offering, these people said. It also highlights a new threat to bulge-bracket banks struggling to boost fees in an IPO market coming off its worst year since 2009. The Evonik sale would have been Germany’s biggest IPO in more than a decade.
“This is something investment banks may be concerned about because other intermediaries are competing with their business,” said Martin Steinbach, the Frankfurt-based IPO leader for Europe, Middle East, India, Africa, at Ernst & Young.
Evonik announced on March 12 that its owners sold a 12 percent stake to institutional investors. The deal may value the company at about 14 billion euros, a person familiar with the matter said. Skadden, Arps, Slate, Meagher & Flom LLP advised the institutions buying the shares. None of the IPO advisers were involved in the transaction.
“We have learned a painful lesson on the topic of IPOs,” Evonik Chief Executive Officer Klaus Engel told reporters last week in Essen, Germany, where the company is based. Engel cited the four-to-six month IPO preparation process as one of the reasons why its three attempts were derailed.
MainFirst, a Frankfurt-based brokerage with 200 employees that specializes in selling European equities to institutional investors, reached out to Evonik’s owners soon after they abandoned the last IPO attempt in June, according to a person familiar with the matter.
The bank suggested a private placement that would allow the owners more control over pricing and reduce risk, the person said. By the end of February it had lined up a first group of investors and had a second group less than a month later, according to the person.
The share placement will probably pave the way for a public listing on the Frankfurt stock exchange at the end of April, according to two people familiar with the matter.
For Evonik’s owners, using MainFirst was not only more efficient, it was cheaper. The firm will earn a fraction of the estimated 100 million euros, or 2.5 percent of the IPO proceeds, that Evonik would have paid to Deutsche Bank, Goldman Sachs, Bank of America Merrill Lynch, Credit Suisse Group AG and JPMorgan Chase & Co. (JPM:US), according to people familiar with the matter.
Spokesmen at Goldman, JPMorgan, Bank of America, Credit Suisse, Deutsche Bank and MainFirst declined to comment.
IPO fees in Europe fell by almost two-thirds to $351 million in 2012, mirroring a similar decline in volumes as concern about the region’s sovereign debt crisis curbed investor appetite for new shares. IPOs are among the most lucrative advisory businesses for banks.
Evonik’s route to the stock market could be an alternative for large companies like Evonik that are already known to investors, Ernst & Young’s Steinbach said.
“This clearly adds to the arsenal of alternatives for companies that want to list,” said Stephan Hutter, a partner at Skadden who led the transaction. “The uniqueness of the transaction is also that the owners didn’t retain the services of the traditional investment banks.”
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