City firms cash in on German middle-tier flotation boom

UK practices with German- bases are cashing in on capital markets work as the English passion for flotations spreads to Germany.

Casper Lawson, a partner at Linklaters & Alliance in Frankfurt, says the firm has received 12 instructions in the past three weeks from companies hoping to float – a phenomenal amount for German markets.

The race onto the stock exchange has picked up pace in the past two months, following the huge success of the Neuer Markt – a stock market set up in 1996 to allow medium-sized companies to list.

“Traditionally, German companies have not gone to the stock market. Those that were listed were very large and household names. For example, the average age of a British company at flotation is about eight years old. In Germany, the average was about 50 years old,” says Lawson.

“Now the Neuer Markt is attracting thousands and thousands of Mittelstand (medium-sized) companies.”

The Neuer Markt – or New Market – was set up to address a perceived lack of investment in new technology companies and other medium- sized firms.

“Traditionally, the Germans are very risk averse and tend to put their money into bonds instead of equities. That is because they have had hyper inflation twice this century, and very severe stock market crashes. So, when the Germans see share prices falling, those memories come back,” says Lawson.

“But now there is a new generation coming along that is prepared to take a risk.”

Last year, there were 68 flotations on the Frankfurt Stock Exchange – twice as many as the year before. As many as 350 companies are expected to float this year.

Such is the demand that Allen & Overy has sent London-based capital markets partner Mark Welling to Frankfurt to head a newly expanded team to handle flotations.

“There is a lot more potential activity to come during the course of the year,” says Welling. “Although there is still a certain amount of ambivalence among investors about investing in the higher risk end of the market.”

Reedier Knopf, a chartered accountant and tax advisor at SJ Berwin's German alliance partner Knopf Tullock & Partners, says the firm has handled twice as many flotations this month than last year.

Like Linklaters, Knopf Tullock believes it has attracted extra work in the area because of its links with a British firm.

“In the past, German firms have dealt mainly with private equity, but our clients come to us, and can trust us, because we have a link with an English firm that has more experience of flotations.”