German rocket science
By Geoffrey Smith
September 24, 2014

Germany’s Rocket Internet took another step to becoming Europe’s largest tech IPO in years Wednesday, putting a €6.2 billion ($8 billion) price tag on itself as it prepares to go public in Frankfurt next month.

The Berlin-based venture, which specializes in incubating e-commerce platforms, said it would sell up to 32.94 million shares at its initial public offering at between €35.50 and €42.50 each. The mid-point of that range implies an IPO size of €1.48 billion and an overall valuation for the company of €6.16 billion.

Along with the floatation of online fashion retailer Zalando AG, the Rocket Internet deal marks a renaissance for tech IPOs in Germany, which have been in the doldrums ever since the 2001 bubble burst, painfully exposing the commercial and governance inadequacies of many companies that had tapped the Frankfurt Stock Exchange’s ‘Neuer Markt’.

Founded in 2007 by the Samwer brothers Oliver, Marc and Alexander, Rocket currently operates 66 consumer brands across the world, but few of them will be familiar to U.S. readers because the company concentrates more in copying models that have already proved themselves in the U.S. market and rolling them out in less advanced ones (except China, which is too much of a law unto itself).

Its portfolio includes stakes of between 21% and 34% in online fashion retailers in Dafiti in Latin America, Jabong in India, Zalora in the Asia Pacific region and lamoda in Russia. It also owns 37% of Hellofresh, a “do-it-yourself-dining” service that delivers specific recipe kits to subscribers (including a small fan base in the U.S.). It has already exited from Zalando, which it helped to launch.

In contrast to yesterday’s eye-catching IPO news out of Europe–the listing of luxury shoemaker Jimmy Choo Ltd.–Rocket Internet’s offering looks more like a growth play: only new shares will be sold, and the company has brought in another couple of ‘cornerstone’ investors, including J.P. Morgan Securities and an investment trust managed by Baillie Gifford & Co, to buy over a third of the total IPO, a total of €582 million.

Both the cornerstone investors and the company’s existing shareholders have agreed not to sell shares for at least 12 months.

The company’s financials are as weird as might be expected from a company that ploughs all its money into startups. It had sales revenues of only €72.5 million in 2013, and operating and capital expenditures quadrupled in the first half this year to €117 million, compared to €25.2 million last year.

“Nearly all of our companies have limited operating histories, are significantly loss making, have a negative operating cash flow, require significant capital expenditure and may never be profitable or cash generating,” the company says in its prospectus.

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