The reasons for the constant capital weaknesses of many firms are complex and well known. However, favourable financial framework conditions for companies are essential for growth and revenue. The tightened equity capital regulations for banks (Basel II), which have been in effect since January 2004, mean allocation of credit by banks will tend to become even more restrictive in the future. Entrepreneurs will thus need to use alternative forms of funding. Growth funding for going public and subsequent corporate action has become more popular in recent years, even in Germany.
As a result of the crash of the New Economy and the massive decline of the DAX Index and all other German indices which lasted until 2003, it became almost impossible to go public until the end of 2003. In times when the new issue pipeline was almost completed (10 cases of going public from 06/2001 to the end of 2002, none in 2003) or the markets corrected their over-valuations, like in January 2008, the purchase and re-organisation of a shell company provides a practical IPO alternative for all businesses.
The dilemma for everyone who is now intensively involved with the idea of going public is only that, due to the reticence of the affected banks and their vast staff cutbacks, the IPO pipeline is currently only available to large businesses, and the medium-sized businesses are often put off. However, this is where the possibility of gaining complete independence from the aforementioned problems by purchasing a shell company comes into play.
By purchasing a shell company, the buyer can not only control share sales and share re-allocation more easily, it also gains access to investors who are prepared to provide equity capital for solid corporate planning. This takes place through capital increases offered to free and third-party shareholders for subscription. Capital increases and so-called secondary placements (private placements) are the only remaining alternatives for acquiring capital through the capital market. Many entrepreneurs have also been able to achieve a clear higher valuation, and therefore an increase in the company value, by listing their company on the stock exchange. This is due to the fact that unlisted companies (limited partnerships (KGs), Ltds. (GmbHs) or real estate) are only valued using certain multipliers generally found in the mid single-digit region. However, the stock exchange allows additional growth and profit predictions which are reflected in extra goodwill and therefore higher multipliers. This higher valuation can already display clear value growth with an increase in the multiplier by 1 or 2 points.