Post-merger integration

A capital increase is a meaningful, on the one hand, when a company is looking to prepare for major investments or mergers that cannot be completed with the existing capital base. On the other hand, it can be also a sign that a group is in a crisis, for example, if fresh capital is urgently required to repay debts or reduce borrowing costs.

For joint-stock companies, increases in capitalisation are a tool for raising equity capital. In all cases, a decision of the joint-stock company’s general meeting must form the basis. A qualified majority is required. In case of a regular capital increase, each shareholder has a legal subscription right; that is, the shareholder has the opportunity to keep pace in proportion with their shareholding. This offers the shareholder legal protection against dilution. However, stock corporation law also provides for the possibility of excluding subscription rights in principle. Subscription rights for existing shareholders can also be excluded in the common case of a capital increase using authorised capital. An anticipatory resolution must be made by the general meeting, authorising the board of directors to implement a capital increase within five years. Another instrument for increasing capitalisation can be the issuing of convertible bonds. Issuing convertible bonds and call options is equivalent to a conditional capital increase; there are often no subscription rights for existing shareholders here. This type of capital increase is very popular especially with option programmes for management remuneration.

Listed companies cannot usually handle capital increases on their own; they need the help of syndicate banks. These banks support the company in implementing and marketing the transaction. Syndicate banks attempt to place the shares on the market at as high a price as possible, thus with a minimal discount to the current market price; this is classic investment bank business.

In the case of medium-sized listed companies, banks show a certain reluctance to participate in capital increases for various reasons. The situation is different, however, if a third party funds the capital increase as an investor, and the bank can focus solely on the technical implementation of the capital increase. In this case, the bank has no placement risk and comparatively low costs. This form of capital increase, which is known as PIPE (private investment into public equity), has enormous advantages: PIPEs are privately negotiated transactions, where new shares are issued by a company listed on the stock exchange. The proceeds of this transaction flow directly into the target company and boost its equity capital. One or more institutional investors typically act as the buyers who guarantee the acquisition of all new shares. PIPEs can be designed to be highly flexible. In addition to pure capital increases, the potential options also include convertible bonds and other marketable instruments. Whatever your capital increase looks like in detail: BDO supports you with planning, implementation and communication.

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