KNDS, the Franco-German defense company known for its Leopard 2 and Leclerc tanks, is encountering significant challenges with its planned IPO, initially aiming for a valuation over €20 billion. Institutional investors have pushed back on the deal's structure, causing the target valuation to be slashed to approximately €15 billion, which represents a nearly 30% drop from initial expectations. The primary concerns stem from the proposed ownership structure and a 10-year lock-up period for state holders.
After the IPO, the French and German states, through GIAT and KfW respectively, are each expected to hold 40% of KNDS, leaving only a 20% free float for public investors. This means 80% of the company will be controlled by two governments, with minority investors buying into a company whose majority ownership cannot change for a decade. This governance structure, coupled with the secondary sale nature of the IPO (meaning no new capital flows into the company), has created investor hesitancy, despite KNDS's strong fundamentals.
Financially, KNDS reported €4.4 billion in revenue for fiscal year 2025, a 16% year-over-year increase, along with €661 million in EBIT and €980 million in free cash flow. The company boasts a record order backlog of €33.1 billion as of December 31, 2025, which translates to roughly seven and a half years of revenue at current rates. If the IPO proceeds at a €15 billion valuation, it would imply a price-to-EBIT multiple of approximately 23x based on the 2025 EBIT figures. The dual listing on Euronext Paris and the Frankfurt Stock Exchange is targeting a mid-July 2026 launch.
The struggles highlight broader investor skepticism regarding state ownership, lock-up periods, and a shrinking valuation target in what was anticipated to be one of Europe's largest defense IPOs in years. Germany's acquisition of a 40% stake from the Wegmann family, either before or concurrently with the IPO, is intended to balance Franco-German ownership. The offering comes at a time of surging European defense budgets, driven by geopolitical events and concerns about security. However, these strong market conditions are not enough to offset investor concerns about the company's governance and valuation.
