Success, performance and best in class are what people expect from Porsche, and it certainly didn’t disappoint on Thursday as shares of the luxury carmaker defied market turmoil in a blockbuster initial public offering.
Its shares traded at 85.68 euros on the Frankfurt Stock Exchange, above the initial public offering (IPO) price of 82.50 euros established Wednesday by German parent company Volkswagen, and outperformed a weak Frankfurt market. Volkswagen raised 9.4 billion euros ($9.1 billion) from the offering and plans to use use the money to invest in software and electric vehicles as global auto industry shifts its focus to the energy transition.
Not only was the offering one of the largest initial public offerings in European history, but it comes against a backdrop of the war in Ukraine, inflation, rising interest rates and a global energy crunch that raised fears of recession in major economies such as Europe and the U.S. The strength of Porsche’s IPO shows a strong brand with solid financials can still attract buyers despite a tenuous economic climate.
What is an IPO?
An IPO stands for initial public offering.
Privately held companies have IPOs to sell shares to the public for the first time to become a publicly traded company. Private companies may do this for various reasons, including raising money to grow their business, pay down debt, or make strategic acquisitions.
How big was Porsche’s IPO?
It’s the third largest deal in Europe, behind Italian electrical utility Enel in 1999, valued at $16.6 billion, and Deutsche Telekom in 1996, valued at $12.5 billion, according to figures compiled by financial market data provider Refinitiv.
Under Thursday’s offering, Volkswagen sold 12.5% of Porsche to investors in the form of non-voting shares. Another 12.5% plus one share in voting shares was bought at a 7.5% premium by Porsche Automobil Holding SE, representing the Porsche and Piech families, descendants of automotive pioneer Ferdinand Porsche. Their holding is also Volkswagen’s controlling shareholder with 53% of voting shares.
Total proceeds from the sales of the two blocks of shares totaled 19.5 billion euros. Of that amount, 49% will be paid out as a dividend to Volkswagen shareholders. The rest is left for VW to fund its investments in future technologies.
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Who bought Porsche IPO shares?
Though it’s difficult to pinpoint who all the buyers were on the first day, the state investment funds of Qatar, Norway and Abu Dhabi took stakes, along with money manager T. Rowe Price.
Why is the timing of Porsche’s IPO significant?
Companies usually go public when the economy’s strong so they can garner the highest possible price for their shares. Last year, when the stock market was near record highs and people were still feeling optimistic, 322 companies went public and raised $117.48 billion in the first three quarters, according to EY.
But this year, the mood has changed with soaring inflation, war in Ukraine, an energy crisis, rising interest rates, volatile markets and potential global recession. Europe’s Stoxx 600 index and all three major U.S. stock indices are in bear markets, meaning they have all fallen at least 20% from their peaks.
“The U.S. IPO market is off to its slowest start in six years,” said Rachel Gerring, EY Americas IPO leader. Only 83 companies have gone public, raising $7.27 billion, year to date, making Porsche’s debut even more remarkable. Profitable companies with powerful brands can still lure investors.
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Why were people still willing to buy into Porsche?
Not only is Porsche super cool with its iconic 911, Cayenne and Boxster cars, but it has the financials to back its success.
Last year, Porsche sold and delivered 302,000 cars at an average selling price considerably above $100.000. Its earnings rose 24.5% from the prior year, with return on sales of 16%. That was up from 9.7% during the financial crisis in 2009.
Even though some are worried about a global recession, Porsche is seen as more recession-proof. Those who can afford a Porsche are likely able to more easily absorb rising prices and a general economic slowdown.
AP contributed to this report.