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The offering process

The process and overall timetable for an IPO with a listing on the FSE is broadly similar to other EU Member States and listing venues; however, there are local requirements and market practices that are different from other jurisdictions, and it is important to be mindful of them before embarking on a German IPO process.

i General overview of the IPO process

A typical German IPO process starts with the appointment of (1) one or more underwriters as (joint) global coordinators for the IPO and (2) the issuer's and underwriters' legal counsel, as well the issuer's auditors. In particular, on larger IPOs the issuer's legal counsel is already on board before underwriters are mandated.

It has become increasingly common for German issuers or their shareholders to also appoint an IPO adviser for the IPO, whose main tasks are to provide independent advice to the issuer and its shareholders – in particular in relation to valuation, equity story and investor feedback – and to help manage the whole IPO process. Issuers with a complex financial history, which could result in the need to include pro forma financial information, carve-out financials or combined financial statements in the prospectus typically also appoint accounting advisers to help them prepare those financial statements and financial information.

Once the joint global coordinators and advisers are appointed, the timeline for a German IPO process is driven by the targeted window for the launch of the IPO. Once the targeted IPO window has been determined, the entire process is then typically organised around the following key milestones.

Early-look meetings with investors

It has become market practice for IPO candidates to meet selected investors early in the IPO process to introduce the business and its management and provide potential investors with an opportunity to ask questions about the business. The meetings take place on the basis of a short presentation: the early-look presentation. In the context of IPOs or spin-offs of subsidiaries by listed companies, it is important to consider whether the early-look meetings constitute 'market sounding' for the purpose of the European Market Abuse Regulation (MAR).

Analyst presentation

The analyst presentation is a presentation by the senior management of the issuer to the research analysts of all members of the underwriting syndicate, who will then write independent pre-deal research, which is distributed once the intention to float (ITF) announcement has been published by the issuer. The preparation of the syndicate's research reports is governed by research guidelines, which are prepared by the underwriters' legal counsel.

On a typical German IPO where neither the issuer nor its parent has any listed securities, the analyst presentation is conducted as a private presentation to the analysts of the underwriting syndicate, without publication of the analyst presentation.

If, however, the parent of the IPO candidate is already listed or has listed debt securities of which the price could be affected by the planned IPO, then the analyst presentation is typically conducted publicly, for example in the form of a capital markets day.

In a typical process, the analyst presentation takes place at least six weeks before the ITF announcement and is an extended version of the early-look presentation.

ITF announcement

This announcement is typically the first official announcement by the issuer regarding the IPO plans and is preceded by a go or no-go decision by the issuer or shareholders. Although there is no hard and fast rule preventing issuers from discontinuing the IPO process once this announcement has been published, it is paramount to only publish it if there is concrete intention to launch the IPO in short order as stopping the process thereafter is generally viewed as detrimental to an IPO process.

The announcement triggers the distribution of research reports by the syndicate analysts and the pre-deal investor education phase of the IPO, which typically refers to the period between the distribution of research reports and the publication of the prospectus.

Approval and publication of the prospectus

On IPOs with a public offer in Germany (which represents the large majority of German IPOs), the prospectus must be approved by the competent regulator (for issuers incorporated in Germany, BaFin) and published by the issuer before book-building can commence. As the final offer price will only be set at the end of the book-building, the prospectus includes an offer price range.

On German IPOs, the underwriting agreement between the issuer, the selling shareholders (if relevant) and the underwriters is signed before the publication of the prospectus and the start of the book-building period, subject to the execution of a pricing supplement once the price is agreed at the end of the book-building period. Unlike in the United Kingdom, there is, therefore, no requirement on German IPOs to have a registration statement published before the publication of syndicate pre-deal research to allow unconnected (non-syndicate) analysts the opportunity to write pre-deal research.

Roadshow, book-building, pricing and settlement

On a German IPO with a public offer, the offer period must last at least six full working days before the IPO can be priced. While, historically, book-building periods on German IPOs were longer than the statutory minimum of six working days, there has been a trend towards shorter book-building periods since the start of the covid-19 pandemic as a result of most of the roadshow meetings with investors taking place virtually rather than in person.

Assuming that the final offer price is within the price range included in the approved prospectus, it is communicated to the market via an ad hoc announcement without the need for a prospectus supplement.

Issuers should factor in nine to 11 weeks for the prospectus review and approval process by BaFin and at least three rounds of comments. Based on current practice, BaFin sends comments on the first, second and third submissions after 20, 10 and 10 working days, respectively. As long as the timeline has been pre-aligned with BaFin, it is possible to rely on BaFin providing comments on the pre-aligned dates; however, the length of the turnaround time between receiving comments from BaFin and the next submission will determine the ultimate time required until approval of the prospectus.

It is also advisable to leave some leeway at the back end of the review process to cater for situations where questions come up that require time to resolve or changes to the prospectus. It is also important to bear in mind that the draft prospectus must be as complete as possible in the first submission and, therefore, must include final historical annual financial statements, including signed audit reports, unless agreed otherwise with BaFin. The final interim financial statements must typically be included in the second submission.

As mentioned above, the prospectus review process, the scope of the financial statements included in the prospectus and any other topic that could result in non-compliance with the requirements of the EU Prospectus Regulation should be pre-aligned with BaFin at the beginning of the process. As this pre-alignment process can take time, it is advisable to have these discussions as early as possible, in particular if there are complex questions relating to financial disclosure or accounting.

The typical IPO process takes approximately six months; however, more time may be necessary if, for example, significant pre-IPO corporate reorganisations are necessary or there are other IPO readiness topics that need a longer lead time. For example, if the legal form of the issuer needs to be changed ahead of the IPO, it is important for this to be reflected in the key steps in the timeline as the change of legal form must be completed ahead of the approval of the prospectus by BaFin.

Similarly, corporate governance topics should be discussed early in the process to ensure that there is sufficient time to implement the desired structure and, if necessary, identify the right independent board members. The timeline for the preparation of the financial statements required for the prospectus should be discussed with the accounting advisers (if appointed) and the auditors as the financial statements are a key gating item for the entire process; final financial information must be provided to the analysts sufficiently ahead of the finalisation of research, and the final annual and interim financial statements must be included in prospectus drafts submitted to the regulator as part of the prospectus approval process.

It is also important to bear in mind that previously published or intended financial guidance could constitute a profit forecast within the meaning of the Prospectus Regulation, which must be reflected in the timeline, given the requirements relating to profit forecasts both in terms of content and review by the auditors.

In addition, if no reliable third-party industry information is available, it should be discussed early in the process whether a third party should be engaged to prepare data that can be used for the analyst presentation and the prospectus. As the process of collecting documents for the data room as part of the legal due diligence process also takes significant time, it is advisable to start with this process as early as possible. For this purpose, legal counsel prepare a documentary due diligence request list, and the issuer typically appoints an external virtual data room provider.

Although German IPO processes and the documentation are largely in line with international market practice, there are some differences to other jurisdictions. For example, while at least one of the underwriters must submit the listing application jointly with the issuer and act as listing agent, and the underwriters take on statutory responsibility for the prospectus, there is no formal sponsor regime for listings on the FSE.

For reference, the sponsor of an IPO with a Premium listing on the London Stock Exchange is required to make certain declarations to the UK Listing Authority – including in relation to the sufficiency of the company's working capital, the adequacy of its internal controls and financial reporting systems, and its ability to comply with the UK listing rules and disclosure rules; thus, an enhanced due diligence exercise (including the preparation of reports by accountants) is conducted to provide the sponsor with comfort in making these declarations.

Although there is no formal sponsor regime, and accountants' reports (other than the audit report included in the prospectus) are not customary on German IPOs, it is absolutely standard and necessary on German IPOs to conduct a comprehensive international style due diligence exercise. German market practice in terms of IPO due diligence follows the US model and, therefore, concentrates on documentary due diligence (review of documents in a data room prepared on the basis of a due diligence request list), management due diligence (discussions with management based on questionnaires), financial and business plan due diligence and auditor due diligence.

The key objective of the due diligence exercise is to avoid liability in connection with the IPO by ensuring the accuracy and completeness of the prospectus and, from the underwriters' perspective, establishing the due diligence defence. It is also the basis for the legal counsel to issue the customary legal opinions, which on IPOs by German companies typically comprise German and US legal opinions as well as US and German disclosure letters regarding the content of the prospectus. In addition, the auditors issue US and German comfort letters.

There has also been a trend towards allowing investors to participate in the offering as cornerstone investors who commit, on the basis of a cornerstone investment agreement, to participate in the IPO within the price range up to a certain maximum amount. Those cornerstone investments are typically entered into ahead of the execution of the underwriting agreement and approval of the prospectus, and they are disclosed in the prospectus and typically in the launch press release.

Cornerstone investors typically get access to drafts of certain prospectus sections ahead of the prospectus approval on the basis of a non-disclosure agreement. From a legal perspective, it is important to manage the information provided in such a way that there is no differential disclosure when compared with the other IPO investors.

ii Pitfalls and considerations

As the period required by BaFin for the review of the draft prospectuses has recently increased, it has become more important to allow for sufficient time for the prospectus review process. It is particularly important to address any disclosure items that deviate from the norm, such as complex financial history topics, with BaFin as part of the pre-alignment process early in the process to avoid negative surprises later in the process.

In the case of secondary IPOs of issuers incorporated in Germany where shareholders are selling shares as part of the IPO, it is also important to consider whether German corporate law requires the selling shareholders to indemnify the issuer for any damages incurred by the issuer as a result of the IPO and to reimburse the issuer for costs incurred by the issuer in connection with the IPO.

Public offering of securities insurance (POSI) is also more common on German IPOs than in other European jurisdictions, and brokers should be appointed early in the process to allow for sufficient time to find the appropriate commercial solution and negotiate the POSI terms.

On a more general note, the amount of effort required from the issuer's management should not be underestimated, in particular in terms of drafting the analyst presentation and the prospectus. To allow management to continue to focus on its business, it is advisable to have a dedicated core team within the issuer's organisation to not only help drive the process together with the joint global coordinators, the IPO adviser (if appointed) and the issuer's external legal advisers but also to coordinate internally the input required from the issuer's management.

iii Considerations for foreign issuers

The environment for listings by foreign issuers on the FSE is generally very supportive. There are, however, a few important questions that should be considered before starting the IPO process, including determination of the competent regulator for the approval of the prospectus.

For issuers incorporated in another EU Member State, the regulator of the issuer's home Member State will be responsible for the approval of the prospectus, which will then be passported pursuant to the rules of the Prospectus Regulation to BaFin for purpose of the listing on the FSE.

For issuers incorporated outside the European Union that are looking to list on the FSE, BaFin would typically be the competent regulator for the prospectus approval; however, it must be confirmed that the issuer has not previously selected another EU Member State as its home Member State for the purpose of the Prospectus Regulation.

In addition, the financial statements must be prepared under the International Financial Reporting Standards as adopted by the European Union or equivalent accounting standards and audited by auditors recognised under the Prospectus Regulation. The rules regarding equivalence and recognition of auditors are relatively broad; however, it is advisable to determine this early in the process and, if necessary, align views with the competent regulator. It is also important to check that the securities are eligible for listing and clearing through Clearstream.