KNDS Juggles €1bn Factory Conversion and Audit Impasse in Race to Summer IPO

KNDS invests €1B in plants, eyes Mercedes and VW sites; order backlog €23.5B, but IPO delayed by PwC audit over 2013 Qatar contract probe.

The German-French defense group KNDS is pushing ahead with a costly expansion of its production capacity even as a lingering probe into a decade-old contract threatens to derail its summer listing plans. The company is in talks to take over Mercedes-Benz’s plant in Ludwigsfelde, Brandenburg, where it would initially rent space before a full acquisition. Military vehicles could roll off assembly lines alongside Sprinter vans during a transition period.

The investment in new assembly lines is estimated at roughly €1 billion, and around 2,000 workers could transfer to KNDS if the deal goes through. Management is also eyeing Volkswagen’s Osnabrück site, though competing bids are already on the table — Israel’s Rafael Advanced Defense Systems signed a letter of intent for that location in late April.

The urgency behind these moves is clear. KNDS ended 2024 with an order backlog of €23.5 billion, up from sales of €3.8 billion for the year. Revenue climbed 17%, and new orders reached €11.2 billion. Yet growth has lagged behind some peers, and capacity constraints are becoming acute. Recent contracts have only added to the pressure: in mid-May, the group won a British order for 72 self-propelled howitzers valued at nearly £1 billion. Deliveries of upgraded howitzers to the Bundeswehr are also under way, along with production of fresh Leopard 2 tanks. In Norway, a joint venture with RITEK is setting up a Leopard production line in Levanger that can turn out up to 36 tanks annually, backed by a 54-vehicle contract worth around €2 billion.

But while operations are expanding, the path to the stock market has hit a snag. PricewaterhouseCoopers has so far withheld its audit sign-off for the 2025 financial statements, waiting for the outcome of an internal investigation by law firm Freshfields into a 2013 contract with the Qatari armed forces. That deal, originally arranged by Krauss-Maffei Wegmann, involved howitzers, Leopard tanks, support services, and training, with a total volume of €1.89 billion. Allegations of multi-million-euro commission payments prompted KNDS to launch a fresh probe at the end of April. To date, no evidence of criminal misconduct by any current or former employee has surfaced, but PwC insists on seeing the investigation concluded before it will issue the testat.

The standoff has dented the company’s expected valuation. Investment bankers now peg KNDS at between €18 billion and €20 billion, down from earlier whispers of up to €25 billion. A benchmark from competitor Rheinmetall — whose shares have dropped roughly 38% since late January — reinforces the new, more cautious climate for European defense stocks.

KNDS chief executive Jean-Paul Alary is sticking to the summer timetable for a dual listing in Frankfurt and Paris, which is expected to raise around €5 billion. The consortium of banks — Bank of America, Deutsche Bank, Goldman Sachs, and Société Générale — is working on two scenarios: one for a June or July launch, and a fallback for the autumn if the audit deadline slips. Alary has also pushed back against Chancellor Friedrich Merz’s suggestion that the IPO should be postponed until autumn 2026 to allow time for a state equity stake. Berlin is still debating the size of that stake: the defense ministry favors roughly 40%, while the economics ministry and chancellery lean toward 30%. Even the smaller share would, under Dutch law, give the federal government a blocking minority.

The administration’s own documents describe the timeline as “extremely ambitious.” The key date is the end of May, when both the PwC sign-off and the government’s decision on a stake are expected to converge. If either element slips, the IPO will almost certainly be pushed into the autumn, a period that bankers already view as more volatile. For now, KNDS is racing on two fronts: turning auto plants into tank factories, and clearing the paperwork needed to fund it all.