The IPO method has suited Evonik's two original owners, RAG Foundation, which had a 75% stake, and CVC Capital Partners, with 25%, very nicely. Whether its new investors have obtained such a bargain isn't so obvious.
Certainly, this isn't a ringing endorsement of Europe's IPO market. Bankers were able to sell Evonik to investors such as Singaporean sovereign-wealth fund Temasek, which now has a 4.6% stake, partly because the company was known to them from earlier IPO attempts. That got around the previous problem for Evonik of turbulent markets derailing the float, as well as suiting investors' increasing dislike of the traditional, lengthy IPO book-building process. The only risk for early buyers was that the company wouldn't find enough investors for a 10% free float, the minimum requirement in Germany, potentially leaving them with an illiquid holding.
Given Evonik's market-leading positions in many of the products it sells, and the relatively stable industry it operates in, it is a reasonably sure bet for investors. Its 19.4% operating-profit margin is ahead of peers such as BASF BAS.XE +0.93% and Johnson Matthey, JMAT.LN 0.00% while earnings could grow by 13.1% a year over the next three years, ahead of the 8.5% peer average, according to J.P. Morgan JPM -0.00% .
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That appears to justify Evonik's valuation at seven times expected 2013 earnings before interest, tax, depreciation and amortization, in line with BASF and a discount to the sector average. Still, RAG Foundation, a public entity set up to fund the decommissioning of German coal mines, plans to sell its current 68% stake down to 25% eventually, while CVC will surely look to exit fully over the medium term. That creates a natural overhang on Evonik that will have to be carefully managed. Otherwise, Evonik's IPO formula won't look so clever after all.
