Tipp24 opts for decoupled IPO

German internet-based lottery operator Tipp24 completed its IPO many times oversubscribed on October 12, and priced at the top of its range. The deal saw the company issue 2.19m new shares while private equity backer Earlybird and management sold down their holdings in a 1.9m-share secondary sale.

The IPO – led by Deutsche Bank and Morgan Stanley – was the latest to employ the decoupled process. But the stock struggled in the aftermarket and many bankers remain unconvinced that the new approach has added any real benefit to deals this year.

The decoupled process involves investors meeting management prior to the setting of a price range, although pre-deal research still provides some indication of potential valuation. The company typically then completes a rapid bookbuild of about three days, in order to minimise market risk.

Although bankers would say there was little apparent downside to the process, the criticism that is sometimes levelled against it is that bookrunners are not taking a sufficiently strong lead in the process, and that too much pricing power is given over to the market by not fixing a valuation before roadshows. In addition, some say that the good timing of deals has meant that the process has added little benefit.

“The decoupled IPOs this year have all been the right story at the right time, so would have gone well anyway,” said one banker previously involved in a decoupled offer. “Pricing may have been 5%–10% higher than if the range was set after pre-marketing, but companies are more concerned about successful completion and a good aftermarket than 5% on pricing.”

Tipp24 ended more than 15x covered at the top of the €16.50 to €20.50 range. Despite strong support during the deal, the stock opened at €19.50 on Wednesday, October 12. It then recovered to €19.85 on Friday morning, but was still below the offer price.

“In a difficult situation with a small deal, decoupling is perfect, but do you need to do it in the current environment?” said another banker who has led a decoupled IPO. He added that the recent IPO of ErSol, which was decoupled, and that of Q-Cells, which was not, took place at the same time and were both successful.

Q-Cells is up 17% while ErSol is up 7.9% from their IPO prices. Other decoupled deals from earlier this year, such as Conergy and Interhyp, are also above offer price. In the case of Tipp24, the book saw 250 orders for the €83.2m offer and as a result more than 50% were zeroed. About 10% went to retail and 70% to Tier 1 accounts across Germany, the UK, the US and Switzerland.

The fact that the model was able to achieve significant subscription – even from retail – does underline the potential redundancy of the traditional two-week bookbuild. Another upside is that the IPO timeframe can be compressed, allowing for increased deal-flow, as has been seen since this summer.