(Direct) Private Investments in Public Companies (PIPE) in Germany - Value Trust
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FINANCIAL EXPERTS IN ACTION
For your benefit. By conviction. Solution-oriented, independent
and partnership-based.
(Direct) Private Investments in Public Companies (PIPE)
in Germany
Dr. Murad M. Daghles, White & Case
Dr. Thyl Hassler, White & Case
Prof. Dr. Christian Aders, ValueTrust
Christopher Buhlmann, ParkView Partners
March, 2021
GHORFA – ARAB-GERMAN CHAMBER OF COMMERCE AND INDUSTRY March, 2021 2
GHORFA – ARAB-GERMAN CHAMBER OF COMMERCE AND INDUSTRY
Objective Promotion of sustainable business relations between Germany and the Arab world for over 40 years now
A comprehensive range of services available to Ghorfa members and the wider Arab and German business
Offer community, assistance in finding valuable partners to strengthen and expand their business
Main focal Information | Consulting | Networking
points
Quick access to industrial and political decision-makers in Germany and the Arab countries
Benefits to
members
Direct, reliable and efficient personal networks
A variation of up-to-date and in-depth information regarding special issues, countries, and sectors
All German and Arab companies are invited to become part of the high-level network for professionals and
business leaders of the Arab-German business community
March, 2021 3
Germany remains an attractive region for investments in Europe: high GDP, political stability and
strong performance of the equity markets
German market performance vs. other European markets
Country GDP (2020, in EURbn) Representative stock market indices (last 2 years)
Germany 3,332 56.6%
France 2,279 46.6%
Italy 1,652 51.3%
Spain 1,120 30.3%
30.3%
Netherlands 797 56.8%
Switzerland 656 29.9%
Poland 522 49.7%
Sweden 472 57.1%
Belgium 450 41.3%
Austria 376 58.2%
Norway 318 55.2%
Denmark 309 47.8%
Finland 237 60.1%
Average: 49.3%
Source: CapitalIQ, as of 15/03/21; European Commission – Eurostat
March, 2021 4
While valuations have increased equity research analysts continue to see upside in German
stocks based on fundamental valuation techniques and the valuation gap in particular to the US
remains
Upside potential derived from broker target price…1 …and relatively undervalued (P/E Multiple comparison)
∆ 3.4x
11.3%
29.0x
4.8%
25.6x
01/01/2020 Today DAX DOW
Source: CapitalIQ, as of 15/03/21; (1) Average upside potential measured across all DAX companies
March, 2021 5
The German equity market is geared towards highly attractive IP heavy sectors – while many
publicly listed companies have anchor shareholders, only one third are without a main
shareholder
Listed German companies by industry LTM share price performance of German listed companies
Sectors Performance
12.2%
20.3% Industrials Energy 227%
7.0% Information Technology
Consumer Discretionary Consumer Discretionary 117%
7.0% 680 public
Health Care
companies
18.4% Financials Information Technology 95%
10.0%
Communication Services
Real Estate
10.6% Materials 82%
14.5% Other industries 1
Industrials 79%
Distribution of the main shareholders in German listed companies
Financials 60%
One third of the companies have
largest shareholder holding < 10% Health Care 58%
201
% of shares held by the major Communication Services 45%
257
shareholder in each company:
680 public
companies 0-10% 20-30%
Utilities 27%
10-15% >30%
32 15-20%
34 Real Estate 23%
94
Consumer Staples 23%
Source: CapitalIQ, as of 15/03/21; (1) Other industries include: Materials, Consumer Staples, Utilities, Energy
March, 2021 6
Private Investments in Public Equity (PIPEs) offer a public company the opportunity to raise a
large amount of capital, in an accelerated and tailored fashion
Private Investment in Public Equity: PIPE transactions by industry (2015-2020)
Acquisition of a minority shareholding in a listed company below the
9.0% Information Technology
30% control threshold under takeover law (Sec. 29 para. 2 WpÜG)
4.7% 22.6% Health Care
P Private 7.1% Consumer Discretionary
Financials
A privately negotiated transaction between a company and the investor or a
8.5% 212 PIPEs1 Industrials
limited group of investors. The offer is not made public and transaction terms
Real Estate
are individually negotiated
8.5% 21.7% Utilities
I Investment Other industries
2
17.9%
Direct investment in a company. The investor buys newly issued equity and
the proceeds directly benefit the company
P (in) Public Number of PIPE transactions1
The stocks of the issuing company are publicly listed on a stock exchange 33
E Equity
19
The PIPE investor invests in equity or an equity-linked security (e.g.
convertible debt). This means the investor directly or indirectly acquires
some degree of ownership in the company
+
Restructuring of large stakes if
friendly/with consent of management 2015 2020
Source: CapitalIQ, as of 15/03/21; (1) Based on definition by CapitalIQ; (2) Other industries include: Materials, Communication Services, Consumer Staples and Energy
March, 2021 7
Raising capital and optimizing the shareholder structure are important motivations for PIPE
transactions
Primary Offering Secondary Offering
1
Raise new capital to fund business expansion, e.g. new facility, product,
Expansion capital
market
2
Raise new capital to fund acquisitions
M&A
Can also be done by contribution-in-kind
3
Balance sheet repair/ Use proceeds to delever balance sheet
financial flexibility Especially important in market downturns or ‘rescue’ situations
4
Equity commitment in combination with strategic partnership
Strategic partnership
Can also include some form of synergy realisation/sharing agreement
5 Search for new anchor investor shareholder to dilute hostile acquirer/
activist
Defence
Potentially provide voting support
6
Restructuring of
shareholder structure
Find a new anchor shareholder to replace existing/exiting large shareholder
March, 2021 8
Instruments for PIPE structures
Description Key considerations
1
Fast (implementation through utilization of authorized capital)
Cash capital Using authorized capital
High transaction certainty (if no subscription right)
increase of up Limited to 10% of share capital (without subscription right)
to 10% Discount of up to 5% possible
Above 10% only with subscription right to existing investors
× Limited in size
2 Higher structuring flexibility
Can be structured as standard or mandatory convertible Fast and high transaction certainty
Convertible
Using conditional capital Interest for investor
bond
Limited to 10% of share capital (without subscription right) Raising equity at a premium
× Investor not immediately shareholder
3
Contribute assets in exchange for shares
High transaction certainty
Contribution- Using authorized capital
Seller participates in upside
in-kind Up to 50% without subscription right but usually limited to 20%
× Only works in context of M&A
(by proxy advisors)
4
Acquire sizeable stake from existing anchor investor and/or the Limited restrictions for stake purchase
Acquisition of market × Limited influence by the company requires selling shareholder
a stake
Can be done to complement primary measures × No proceeds for the company
March, 2021 9
Why PIPEs work – the investor perspective
Motives Advantages
Deploy significant amount of capital Faster and more straight forward process (compared to M&A process)
Benefit from value creation, while sharing benefits and risks with High transaction certainty
other investors
Allows gaining some form of influence via supervisory board, Potential to acquire shares at a discount to the current share price
while adopting light-touch approach (not involved in day-to-day
operations)
Pure focus on financial investment/gain, however strategic Potential to invest efficiently in companies with more limited trading
objectives also possible liquidity
Maybe first step for broader partnership/subsequent take-over Ability to divest over stock exchange in a fast and efficient way
offer (sufficient liquidity provided)
Access to sectors or companies where ownership is restricted Lower financing volume (compared to 100% acquisition) and alternative
financing means (e.g. margin loan)
March, 2021 10General Process
Issuance of new shares Shareholder meeting Board approval Acquisition by the investor
Issuance of new shares or Typically no authorization by Management Board, with If 3%, 5%, or 10% of voting
acquisition of shares from shareholders’ meeting Supervisory Board‘s approval, rights are acquired:
third parties necessary can utilize authorized capital mandatory disclosure of
Typically issuance of new at any time voting rights of investor
Capital increase from
shares against cash authorized capital; it needs to Further thresholds are:
contribution: be determined whether: 15%, 20%, 25%, 30%, 50%,
By capital increase from 75%
the shareholder authorization
authorized capital limited to
is already partially or fully Acquisitions of over 30%
up to 10% of total voting
used trigger a mandatory takeover
rights
offer
the shareholder authorization
Exclusion of subscription
is only made for certain types
rights of existing shareholders
of investors
(must be justifiable, e.g. in
case of a strategic PIPE the shareholder
transaction) authorization specifies the
further parameters of a
Issuance of (new) shares
discount or sets a price
possible without a prospectus
if the company addresses offer the time period for which the
to limited circle of investors current shareholder
Limit for discount on share authorization is valid
price ranges between 3% - 5%
unless there is a restructuring
scenario
March, 2021 11Main documentation requirements
1 Non-disclosure agreement between company and investor
2 Letter of intent / Memorandum of Understanding (only potentially required)
3 Management Board and Supervisory Board resolutions on issuance of shares from authorized capital
4 Subscription certificate
5 Ad hoc notification by the company
6 Voting right notification(s) by the investor
7 Underwriting / Investment agreement, covering:
Terms of issuance of new shares Information rights of the investor
Provisions regarding the timing of the transaction Provisions of the representation of the investor on
Any conditions to closing (antitrust approvals or the Supervisory Board
other regulatory approvals if required) Lock up / standstill agreements
Exclusivity period
March, 2021 12Approval considerations
Shareholder approval Regulatory approval Due diligence right
Usually, no shareholder approval is required, Antitrust approval will typically not be Confidential information
if: required if not more than 10% of voting Assessment of potential use of insider
No more than 10% of voting rights are rights are acquired information by investor
acquired Should be reviewed as a matter of Rules for insider trading already apply early
shares are issued from authorized capital precaution in the process
general approval of shareholders to the If foreign (non-EU) investor holds more than Particular caution if EU insider trading law
exclusion of their subscription rights within 10% voting rights in total: FDI analysis and foreign capital market law is applicable
AoA required in cross border transactions
Depending on business sector (e.g.
Review of target companies AoA for general telecommunication) Due diligence is permissible in a listed
approval by the shareholders for the company
Completion of PIPE transaction only after
authorized capital Extensive scope: even insider-relevant
clearance
Approval of PIPE transaction by information can be provided
Management Board and Supervisory Board However, in PIPE transactions typically not Serious interest of investor must be
required more than 10% of voting rights will be documented (NDA, term sheet)
acquired Management Board not generally obliged
Ownership control procedure to allow due diligence (company’s best
(Inhaberkontrollverfahren) with BaFin interest)
required if 10% of voting rights acquired in Information is provided in a staggered
regulated sectors approach
Antitrust aspects need to be considered in
the due diligence process if competitors
are involved (e.g. ‘clean team’)
March, 2021 13Governance rights
Agreements on nominations and voting Minority shareholder rights are granted to
Principle of equal treatment of shareholders
agreements with shareholders all shareholders holding
Generally: equal treatment of all Assessment of triggering of acting in concert >= 1 share: e.g. attend shareholders
shareholders, thus no special right to certain rules (individual case basis) inside and meeting, receive dividends, receive
shareholders outside of shareholders‘ meeting information
PIPE transactions regularly include If acting in concert: voting rights are >= 5%: e.g. demand shareholders meeting,
agreement that investor may propose attributed and must be disclosed appoint special auditors, put items on
individuals to Supervisory Board agenda
If combined 30% or more of shares:
No hard legal obligation, as ultimate
mandatory public takeover offer required >= 10%: e.g. block squeeze-out, contradict
authority rests with shareholders' meeting
to waiver of claim for damages against
Thus „best-effort“ clause for the company German Federal Court and BaFin: ‘single Management Board and/or Supervisory
case exception’ Board
However, in practice such
recommendations are usually
implemented
March, 2021 14Selected recent examples for PIPE transactions
Acquired
Date Issuer (Company) Investor Volume PIPE Type Background / Rationale
shares
Pre-placement agreement between Schaltbau and investor consortium
Mandatory (consisting of existing and new investors)
01/03/2021 EUR 60m n/a convertible Use of proceeds: capital will be used to finance a new production plant and
bond fund possible acquisitions
The convertible bond will be issued in early April 2021
The German Federal Government became a new anchor shareholder by
acquiring a 25.1% stake from existing anchor shareholder KKR
Acquisition of
17/12/2020 EUR 450m 25.1% Federal government secures a blocking minority, given HENSOLDT’s
shares
importance for Germany (technology partner and strategic supplier)
The investments also secured up to 3 seats on Hensoldt's supervisory board
Issuance of 11.5m new shares from authorized capital under exclusion of
subscription rights
Cash capital Use of proceeds: funding of Evotec’s growth strategy
31/10/2020 EUR 250mSelected recent examples for PIPE transactions (cont’d)
Acquired
Date Issuer (Company) Investor Volume PIPE Type Background / Rationale
shares
Naspers initially entered as a pre-IPO investor and increased its stake to 23.6%
by acquiring shares from existing shareholder Rocket Internet, thus becoming
Secondary the largest shareholder
28/09/2017 EUR 660m 13.0% acquisition of
Rationale for Delivery Hero: strengthen long-term relationship with Naspers,
shares
and benefit from their expertise in building leading marketplace businesses
Since 2018, Naspers is represented with one seat in the supervisory board
Industry peer and partner SABIC acquired a 25% stake from activist investor
White Tale and 40 North Management
In September 2018, Clariant and SABIC enter governance agreement defining
the long-term strategic relationship and is entitled to nominate 4
Secondary representatives to Clariant’s Board of Directors
25/01/2018 EUR 2,013m 25.0% acquisition of
shares In 2019, a possible joint venture between Clariant's Additives and Specialty
Masterbatches businesses with parts of SABIC's Specialty Chemicals business
was initially discussed, but later temporarily suspended
In 2020, SABIC increased its stake to 31.5%, however not triggering a
mandatory takeover offer1
Issuance of 700k new shares from authorized capital under exclusion of
Cash capital subscription rights
14/12/2017 EUR 18mDiscussion &
Q&A
March, 2021 17Appendix – Your contacts March, 2021 18
About White & Case
We work with well-established banks and
businesses, as well as start-up visionaries,
governments and state-owned entities
In both established and emerging markets, our
lawyers are longstanding members of the
community
For over 100 years, the core focus of White &
Case has been to help navigate and advise our
clients across the world’s developed and
developing markets
Our cross-border expertise and diverse team of
local, US and English-qualified lawyers
consistently deliver results for our clients
Our innovative approaches create original
solutions to their most complex domestic and
multi-jurisdictional deals and disputes.
March, 2021 19About White & Case
Our global reach Our lawyers
In 2020 we worked We are located on
with clients from
lawyers
in Asia
lawyers
countries on deals continents, in in EMEA
involving
lawyers in
the Americas
lawyers
countries, in
countries
offices
March, 2021 20Dr. Murad M. Daghles
Practice experience
Murad advises national and international corporates on complex national and cross-border M&A-transactions, Distressed-M&A and
joint ventures as well as on German stock corporations, take-over and related capital market law and corporate governance matters.
He has a special focus on corporate real estate matters. Murad has advised on several domestic and cross-border real estate
transactions and has broad domestic and international experience in advising on sales and purchases, property developments,
corporate transactions and joint ventures. Moreover, he specializes on corporate litigation matters, i.e. Post-M&A disputes.
Partner, Düsseldorf Murad regularly advises German medium-sized and DAX-companies on international investments and transactions, in particular in
T +49 211 49195 342 the Middle East and foreign investors and investors inter alia from the Middle East on business activities and investments in
E murad.daghles@whitecase.com Germany and Europe. Murad is admitted to the German bar since 2008 and has worked inter alia in New York, Los Angeles and Abu
Bars and Courts Dhabi.
Rechtsanwalt, 2008 Murad is a “Highly Recommended Lawyer” by Best Lawyers / Handelsblatt 2020, “Recommended Partner for Cross-Border M&A” by
Education The Legal 500 (Corporate/M&A, Germany), 2018 and recognized as “a promising young corporate partner with a certain focus on
Dr jur, Westfälische-Wilhelms-Universität Middle East clients” by JUVE 2019/2020.
Münster, 2009
Second State Exam, Higher Regional Selected matters
Court Düsseldorf, 2007
Advised Palestine-based Sanad Construction Resources Co. on the investment and participation of Palestine Investment Fund
First State Exam, Westfälische-Wilhelms-
(PIF), through its subsidiary Aswaq for Investment Portfolios Ltd, and the Jordanian company Etihad Al Khamsa For Investment
Universität Münster, 2004
and Development (Unifive), in Jericho Cement Industry Company.
Awards and Recognition
“Highly Recommended” – Germany Advised x+bricks group on the approximately EUR 500 million acquisition of 120 grocery-anchored properties from TLG
Best Law Firms for M&A: Mid-cap 2021, Immobilien AG and its subsidiaries.
Leaders League
Advised aamundo Real Estate Group on the setting-up of a joint venture with Angelo Gordon to establish an investment platform
“Recommended Partner for Cross-Border
M&A” The Legal 500 (Corporate/M&A, for value-added real estate in the logistics and light industrial sectors in Germany, Austria and Switzerland.
Germany) Advised Saudi Aramco Energy Ventures as lead investor in the EUR 10 million series B financing round in NexWafe.
“Highly Recommended Lawyer: M&A”
Advised Al Samou Palestinian for Industrial Construction, an affiliate of Sanad Construction Resources, in relation to the
JUVE 2020/2021
conclusion of a Concession Agreement for the benefit of Kushan Real Estate.
“Highly Recommend Lawyer”,
Best Lawyers/Handelsblatt 2020 Advised Ralph Winter, founder of Corestate Capital Holding S.A., on the sale of shares in Corestate Capital. The placement with
institutional investors was carried out by means of an accelerated bookbuilding process and comprised three million shares. This
corresponds to approx. 14.1% of the share capital of Corestate Capital.
March, 2021 21Dr. Thyl Haßler
Practice experience
Thyl advises national and international corporations and private equity companies within major domestic and cross-border public and
private M&A transactions in a variety of sectors, on take-over law, within the formation of domestic and cross-border joint ventures
as well as strategic alliances.
Furthermore, Thyl advises stock listed companies and their corporate bodies in all matters relating to core corporate law matters (in
particular corporate governance, (critical) shareholder meetings, structural measures) and in relation to capital markets law.
Local Partner, Düsseldorf
T +49 211 49195 343
E thyl.hassler@whitecase.com
Selected matters
Bars and Courts
Advised Palestine-based Sanad Construction Resources Co. on the investment and participation of Palestine Investment Fund
Rechtsanwalt, 2012
(PIF), through its subsidiary Aswaq for Investment Portfolios Ltd, and the Jordanian company Etihad Al Khamsa For Investment
Education
and Development (Unifive), in Jericho Cement Industry Company.
Dr jur, University of Cologne, 2013
Second State Exam, Higher Regional
Advised AIT Worldwide Logistics within the acquisition of FIEGE Group's international freight forwarding division, Fiege
Court Düsseldorf, 2011 Forwarding, consisting of numerous companies in Europe and Asia.
First State Exam, University of Cologne, Advised aamundo Real Estate Group on the setting-up of a joint venture with Angelo Gordon to establish an investment platform
2008
for value-added real estate in the logistics and light industrial sectors in Germany, Austria and Switzerland.
Maîtrise en Droit, University Paris I -
Panthéon/Sorbonne, 2006 Advised DIC Corporation within the acquisition of BASF’s global pigments business (EUR 1.15 billion).
LLM, Universities Cologne and Paris I - Advised x+bricks group on the approximately EUR 500 million acquisition of 120 grocery-anchored properties from TLG
Panthéon/Sorbonne, 2006 Immobilien AG and its subsidiaries.
Awards and Recognition
Advised Forterro, a European group of ERP software companies backed by Battery Ventures, on its acquisition of abas Software
Recognized for Energy transactions,
AG.
The Legal 500 EMEA 2020, Germany
Advised IT4process GmbH and its shareholders on the strategic investment of the B. Braun Melsungen Group through the
acquisition of 25.1% of the shares via Aesculap AG with an option to acquire up to 49% of the shares.
Advised Saudi Aramco on the EUR 1.5 billion acquisition of a 50% interest in the specialty chemicals joint venture ARLANXEO
from LANXESS to become sole shareholder of ARLANXEO.*
Advised DUSSUR (Saudi Arabian Industrial Investments Company) on a USD 267 million strategic joint venture with General
Electric to manufacture gas turbines in the Kingdom of Saudi Arabia.*
March, 2021 22ValueTrust / ParkView
Company
FINANCIAL EXPERTS IN ACTION
Expert-based business valuation and financial advisory for executives and investors in demanding situations.
Corporate Transactions Restructuring & Reorganisation Dispute & Arbitration Strategic Value &
Portfolio Management
Adopt new perspectives Create structures Identify patterns Reflect values
Buy-side advisory and carve-out Independent business review (IBR) Damage analysis Strategic portfolio and value
service Fairness opinion for transactions Party-related valuation opinions analysis
Fairness opinions and debt-to-equity swap Financial and economic advice in Business planning and evaluation
Takeover and delisting advisory Liquidation value analysis and proceedings of corporate strategies
M&A advisory valuation of debt capital and Expert determination (as arbitra- Value-based performance
Purchase price allocation and mezzanine tors) and mediation advisory measurement and action plans
impairment tests Scenario analysis of business plans Valuations as court-appointed Cost of capital and capital structure
Valuation opinions regarding the and options for action expert optimisation
determination of fair values for Financial modeling CFO and corporate governance
legal valuation purposes Fair value appraisals for accounting advisory
Takeover defence and tax purposes Post-merger and exit readiness
Synergy allocation and assessment Capital structure analysis and advisory
MAC reports optimisation
Focus Experience Passion Independence Value enhancement
March, 2021 23ParkView Partners
Company
Strategic & Financial Advisory Services Valuation Advisory Services
Independent Board Room Advisory Fairness Opinions
Takeover Defense Fair Value Opinions (in- and out-of-court)
Taking Privates Synergy Allocation and Assessment
Activism Defense Cost of Capital and Capital Structure Analysis
M&A Buy-side Advisory Business Planning and Evaluation of Corporate Strategy
Structured Sell-side Auctions Strategic Portfolio and Value Management
Restructuring & Re-capitalization Management Incentive Program
Mergers
De-mergers/Spin-offs
Anchor Investor Search
We believe in an holistic advisory approach via interdisciplinary teams
March, 2021 24PROF. DR. CHRISTIAN ADERS +49 89 388 790 100
SENIOR MANAGING DIRECTOR
VALUETRUST & PARKVIEW PARTNERS +49 172 850 4839
christian.aders@value-trust.com
ValueTrust Financial Advisors SE
Theresienstrasse 1
Expert for business valuation and M&A 80333 Munich
advisory. Germany
www.value-trust.com
ValueTrust Industry experience Knowledge of languages
Senior Managing Director at ValueTrust Finance Services German
Real Estate English
Telecommunication & IT
Industrials Publications
Project experience Consumer Goods & Services
Pharma & Healthcare List of publications Prof. Dr. Christian
More than 25 years Utilities & Energy Aders
Extensive experience in business valuation
and financial advisory
Career Memberships
Takeovers, mergers, acquisitions and
delistings, restructurings and Duff & Phelps EFFAS, DVFA, DVFA Expert Groups
reorganizations, accounting, business plan KPMG "Fairness Opinions" and "Best Practice
development, value management, disputes Recommendation Company Valuation"
and arbitration Founding member EACVA Germany
Qualifications
Certified Valuation Analyst (CVA)
Certified EFFAS Financial Analyst (CEFA)
March, 2021 25CHRISTOPHER BUHLMANN +49 69 24747 6155
MANAGING DIRECTOR
PARKVIEW PARTNERS +49 176 189 689 19
christopher.buhlmann@parkview-
partners.com
ParkView Partners GmbH
Eschersheimer Landstrasse 14
Expert for public takeovers and complex 60322 Frankfurt am Main
private M&A transactions. Germany
www.value-trust.com
www.parkview-partners.com
ParkView Partners Industry experience Knowledge of languages
Managing Director at ParkView Partners Telecommunications German
Technology English
Healthcare
Consumer & Retail
Project experience
More than 12 years Career
Public M&A including taking private,
takeover defence, mergers J.P. Morgan
Complex private M&A transactions
Activist hedge funds
Corporate finance and capital market Qualifications
transactions including IPOs, capital
increases, carve-outs, private takeovers Diploma in Business Administration
and minority shareholdings
March, 2021 26You can also read
