KKR-Backed Hensoldt Plans Germany’s Largest IPO This Year

(Bloomberg) -- KKR & Co.-backed defense supplier Hensoldt said it plans an initial public offering in Frankfurt that would be the biggest of the year in Germany, helping to drive a revival of a market that has lagged behind other European exchanges for most of the year.

Hensoldt will sell new stock to raise capital in the IPO, and KKR plans to sell shares as well, the company said in a statement Tuesday. Hensoldt didn’t specify the size of the deal, which it aims to complete by the end of the year. The sale will include a public offer to individual and institutional investors in Germany and private placements elsewhere, the company said.

KKR is considering seeking a valuation of as much as 3 billion euros ($3.5 billion) and investors may be offered 20% to 30% of Hensoldt through the listing, Bloomberg reported last month. That would make it by far the biggest IPO in Germany this year, where only three companies have gone public. Those offerings raised $364 million, a fifth of the proceeds from the same period in 2019, according to data compiled by Bloomberg.

Hensoldt makes radars for fighter jets, submarine periscopes and night vision systems for battle tanks and is betting on increased defense spending across the globe, driven by the modernization of armed forces and aging platforms as well as growing electronic content in military equipment, besides geopolitical tensions. The company “benefits from long-standing and close strategic relationships with the German government and with foreign governments, as well as supranational organizations such as the NATO, and their armed and security forces,” it said.

The resilience of its business model has been demonstrated during this year’s Covid crisis, Hensoldt said. Revenue rose 6% in the first half to 440.3 million euros. The company expects to increase its revenue to more than 1.15 billion euros this year and is forecasting 1.4 billion euros to 1.6 billion euros for 2021, driven by a recent order to supply active electronic scanning array radars for Germany and Spain’s Eurofighter fleets worth more than 1.5 billion euros.

Ramp-up costs for that order will depress profitability somewhat, with the company’s operating margin, which stood at 19.3% last year, seen falling toward 18% next year before recovering back to about 19% thereafter, Chief Financial Officer Axel Salzmann said on a call with journalists.

Hensoldt joins Knaus Tabbert AG, the German maker of camper vans and motor homes, which last week set gears in motion for a Frankfurt IPO. Also slated for this month is industrial conglomerate Siemens AG’s spinoff Siemens Energy. Though no money will be raised in the disposal, Siemens will gradually sell down its stake in the unit over the next 12 to 18 months.

The renaissance is likely to carry on, with SoftBank Group Corp.-backed online used-car marketplace Auto1 Group GmbH ramping up IPO preparations, Bloomberg reported last month. Siemens is due to spin off another division, its mechanical drive business Flender, while U.K.-based network provider Vodafone Group Plc is expected to list mobile mast unit Vantage Towers in Frankfurt.

Stock market swings and the coronavirus-shaped dent in the global economy have cramped new listing activity for much of this year, but rallying shares have helped reopen the market to companies that have withstood the fallout from virus-induced lockdowns.

The DAX Index has been one of Europe’s best performers this year, slipping 1.1% through Monday compared with a 12% drop in the Stoxx Europe 600 Index. Germany’s economic slump has turned out be shallower than in neighboring countries, lending confidence to issuers seeking to go public.

KKR bought Hensoldt, formerly known as Defense Electronics, from Airbus in 2017. Based in Taufkirchen near Munich, it also offers solutions to protect civil institutions and critical infrastructure such as borders, energy supply and wildlife reserves. Protecting airports or soccer stadiums from drone attacks alone is a market worth as much as 7 billion euros through 2024, Chief Executive Officer Thomas Mueller said on the call. The company had more than 5,400 employees at the end of 2019.

Bank of America Corp., JPMorgan Chase & Co., Deutsche Bank AG and KKR’s capital markets unit are joint global coordinators. Bookrunners include Citigroup, Credit Agricole CIB, Commerzbank and Unicredit Bank AG in cooperation with Kepler Cheuvreux. Mizuho International is co-manager.

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