GERMANY Law and Practice Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
Uplistings from the open market to the regulated market are possible but not very common. The preparation and execution of an IPO can be divided into three phases: • Conception phase (between five and seven months): creation of the issuance concept, including investment case, placement volume and source (company vs shareholders), hold - ing obligations (lock-up), use of proceeds, choice of market segment, and placement strategy/target investors. • Implementation phase (between three and four months): preparation of investor pres - entations as well as the securities prospec - tus and application for BaFin approval. The prospectus is based on a comprehensive due diligence of the issuer by the global co-ordi - nators of the bank consortium. • Placement phase (one month): underwriting agreement with the lead consortium bank(s), book building, and pricing. Trading usually commences one day and closes two days after pricing. General economic conditions and capital mar - ket sentiments influence the timing. The issuer’s IPO readiness is also critical, including factors such as financial performance, growth trajectory, corporate governance structure and regulatory compliance. As most start-ups in Germany are organised as a GmbH, the IPO tends to neces - sitate a structural conversion into a legal form suitable for public listings (AG, SE, or partner - ship limited by shares ( Kommanditgesellschaft auf Aktien , or KGaA)). Alternative capital market exit strategies to a tra - ditional IPO involve:
• a direct listing, whereby the issuer’s existing securities are admitted to trading without a concurrent public offering – sometimes a pri - vate placement with institutional investors is organised immediately prior to the listing; or • a de-SPAC transaction, in which a private entity goes public by merging with a publicly listed SPAC. 6.3 Pre-IPO Liquidity There is a tangible market need for pre-IPO sec - ondary market trading, particularly to facilitate liquidity for certain investors and employees who hold equity-based compensation in privately held companies. However, so far, no relevant market structures have evolved in Germany or Europe. In Germany, the use of virtual instruments such as individualised, non-transferrable VSOPs has made it challenging for incentive entitlement holders to obtain meaningful liquidity. In April 2024, Forge Global Holdings Inc., a lead - ing private securities marketplace, together with Deutsche Börse, announced the launch of Forge Europe. Forge Europe seeks to establish a mar - ketplace for direct secondary transactions in late stage/pre-IPO start-ups. Pre-IPO secondary market trading faces certain legal challenges. Generally, a published secu - rities prospectus is required for a public offer of shares (as further outlined in 7.1 Securities Offerings ). Given that most start-ups are organ - ised in the form of a GmbH, a prospectus is not required, as a GmbH share is not a security with - in the meaning of the EU Prospectus Regulation. Pursuant to Section 6 of the German Asset Investment Act ( Vermögensanlagegesetz , or Ver - mAnlG), the public offer of investments (which encompasses GmbH shares) requires the pub - lication of a prospectus. Exceptions are made
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