Is a time to eat the young?
Too much of a good thing in Germany
Neuer Markt flooded with IPOs; weary investors pull back
By Barbara Kollmeyer, CBS MarketWatch
Last Update: 9:12 PM ET Oct 1, 1999
Also: NewsWatch
FRANKFURT (CBS.MW) -- They say there's such a thing as too much of a good thing.
That appears to be what's happened at Germany's Neuer Markt over the past few
months, though.
The market for smaller stocks has seen a surge of initial public
offerings this year. But analysts said this flood may be slowing, with nine IPOs canceled in
the past two weeks. Deutsche Boerse, which runs the Neuer Markt, couldn't confirm
these figures due to legal restrictions.
The Neuer Markt started in March 1997 with one company and had a total of 12 IPOs
that year. In 1998, there were 41 IPOs, which soared to 85 by the beginning of August
1999.
Marcus Kramling, information technology and Internet analyst with Deutsche Bank, said
he expects the number of IPOs to total 120 by year-end, with the growing Internet
marketplace in Germany promising to add to those numbers.
The Neuer Markt has become the darling of Europe's bourses, attracting high-technology,
software, information technology, media and a growing number of Internet companies.
Companies from the United States, Switzerland, Israel and, most recently, Ireland have all
sought listings, tempted by the high valuations that the Neuer Markt can offer.
But those companies have added to the heavy traffic from Germany's own booming
business sector, and analysts say they don't have enough time to take a good look at all
the companies on offer. The Neuer Markt itself has reflected some of this upheaval. It has
slipped off a high of 4,000 seen at the beginning of the year and was recently trading at
2,740.
Awash with software
Software and information-technology companies have been particularly plentiful on the
Neuer Markt, but Kramling said investors are now having trouble differentiating between
the companies.
"The most important thing is to have a good story that's easy to understand," said
Kramling. He pointed out that at any given time there could be up to 10 companies
offering enterprise resource planning (ERP) software, which assists in back-office needs
such as payroll and accounting.
"It's difficult for investors or analysts to focus on the main point," said Kramling, who
added that smaller companies also sometimes lack investor-relations departments to
handle the demands of investors and analysts.
To be fair, said Stefan Albrecht, managing director of Net.IPO in Frankfurt, many of the
IT services companies are servicing different areas in their playing field.
"But what's difficult to distinguish, even for the professional investors, is supply chain," he
said. "What's so important about this area compared to that area? They can't really make
a judgment on which one is the more attractive case."
"The problems for investors and analysts is a year or so ago there were one or two IPOs
a week," he said. "Now they don't have the time to get to know the companies."
Fortune and famine
Le Ann Kittell, a software analyst with BHF Bank in Frankfurt, said at least six IPOs
were canceled at the Neuer Markt after software specialist Maincontrol Inc. came to the
market below investors' price expectations when it launched a week ago. She said her
own bank has recently had to cancel one IPO it was backing, although others are
planned.
"We have a little bit too much traffic, and the market was jammed particularly with
'me-too' IT companies, such as the seventh ERP, IT solutions company. You don't really
know what they do," said Kittell.
Another problem for IPO hopefuls is that investors don't need the stock of many
companies that are on offer in their portfolios. "If you're only a $50 million offering, you
have to ... convince investors," he said, although he pointed out that the U.S. Nasdaq has
had a few of the same problems.
One company that has been fairly
well-received on the Neuer Markt is
Trintech Group PLC (TTPA: news,
msgs), which also listed on the
Nasdaq, opening on both a week ago.
The Irish-American software
specialist, which deals in e-commerce
payments, launched the day
after Microsoft Corp. (MSFT: news,
msgs) President Steve Ballmer
pointed to an "absurd" overvaluation
of technology stocks. See full story.
Shares launched at 11 euros and finished the day around 13 euros, and they're still above
the offering price, most recently at 12.40.
On the other side of the coin, Internet multiple-service provider Gigabell.com has seen its
shares slide since its Aug. 1 launch. Last week, the group cut its growth forecast to $55.1
million from $73.5 million (30 million from 40 million German marks), and increased
expected losses to 18 million marks.
Johannes Funke, the chief financial officer with Gigabell, said the group's shares were
down 40 percent before it issued the profit warning. Nonetheless, the share price for
Gigabell, which launched at 38 euros, is now sitting at 12.5 euros.
Natural culling
Analysts aren't yet ready to push any panic buttons over the canceled IPOs, or the fact
that the Neuer Markt has slipped off its highs. "I see it as a cooling down of the market.
It's a natural reaction (to) some overheating," said Albrecht.
"In the long to middle term, there will be a positive turnaround," added Kittell. And the
Neuer Markt's new index of the top 50 companies, introduced last month, means
companies will have to strive for a lot more than just a listing. "This provides more liquidity
for the top and gives the goal for smaller companies to get somewhere."
She said the markets took it badly when the value of Gigabell shares were sliced in half,
but it did teach a lesson to some. "Everyone was so spoiled," she said. "Now it's good
that some of these people who are now billionaires can see that the market can go against
them."
She said once the year-2000-related uncertainty has passed, especially for software and
IT companies, it should become easier for companies to try the Neuer Markt again.
Swiss-based COPE, a data-storage consultant, is one company that canceled its listing at
the Neuer Markt this week, citing too-tough market conditions. "The market environment
was very damaged in the last week," said Marcus Bernhard, the chief financial officer of
COPE. "We decided to wait until the market is better to list."
He said his company hopes to try for another listing in November or December but
admitted that competition is fierce for the attention of investors and analysts. "It's hard to
go public in Frankfurt," said Bernhard.
* One German mark equals $1.8366.
Barbara Kollmeyer writes for CBS MarketWatch in London.
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