Prediction of Ownership and Control Concentration in German and UK Initial Public Offerings

The paper investigates why the corporate landscapes of Germany and UK are so different in terms of control by analyzing ownership and control evolution in recent IPOs. We report the control evolution of a sample of size- and industry-matched German and UK companies six years subsequent to the flotation. The initial shareholders in the average German IPO lose majority control six years after going public, whereas the initial owners of UK IPOs decrease their holding to less than the majority two years after going public. Acquisitions are frequent in the UK with 35% of IPOs being taken over versus only one German sample company. Partial take-overs are common in German firms: in one third of the sample a large controlling shareholder acquires control from the existing controlling shareholder. In order to predict the state of ownership and control six years after going public, a multinomial logit model is used. We distinguish four possible states of control: the company is (i) still controlled by the shareholders who controlled the company prior to the flotation, (ii) acquired by a closely held shareholder (i.e. an individual or family), (iii) acquired by a shareholder with diffuse ownership and (iv) widely held. We find that if the founder still owns a stake at the flotation, the probability that the company will be controlled by this founder after six years is large. For risky and poorly performing German and UK companies, the odds of ending up with concentrated ultimate control increase. In the case of German IPOs, the chance of substantial control concentration augments when non-voting shares have been issued at flotation and when the company experiences a high growth rate subsequent to the IPO. Profitable, low-risk, and large companies tend to be widely held six years after being listed.