Dick Smith collapse may make some retail investors wary. Photo / Michael Craig
Dick Smith collapse may make some retail investors wary. Photo / Michael Craig
Chapman Tripp expects an increase in public share offers this year, after a downturn in 2015, but says investors may be wary of private equity-backed deals - including a planned float of chicken producer Tegel Foods - since the collapse of electronics retailer Dick Smith last month.
In its Equity Capital Markets - Trends and Insights report, released today, the law firm said several companies were considering initial public offerings and more were expected to emerge as the year progressed.
However, Chapman Tripp said IPO activity would not return to the levels of 2013-14.
Only three NZX main board IPOs took place last year, down from 12 in 2014.
"We are aware of a number of companies that had plans to IPO last year but because of various factors, including market volatility, those plans were shelved," said Chapman Tripp partner Rachel Dunne.
Rank Group's Carter Holt Harvey, for example, shelved listing plans last year, citing uncertainty in equity markets.
Although markets remain turbulent, Dunne said the NZX had held up well compared with its international peers, and there was potential for a "backlog" of listings this year.
Auckland fruit-sorting machinery-maker Compac is rumoured to be gearing up for an IPO.
"There's a lot of money still looking for a home in New Zealand, so if a company can come to market with a good story it's likely to get its IPO away," Dunne said. Tegel's private equity owners, Affinity Equity Partners, are understood to be forging ahead with plans for a transtasman sharemarket listing, which could raise as much as $500 million and value the company at up to $800 million. It is expected to go ahead either next month or in April.
But the Dick Smith receivership could haunt the Tegel deal.
There's a lot of money still looking for a home in NZ, so if a company can come to market with a good story it's likely to get its IPO away.
Australian private equity firm Anchorage Capital bought Dick Smith for about A$100 million in 2012 before floating it on the ASX the next year for more than five times that value.
Dick Smith's collapse has sparked much debate about the complex financial engineering - often using hefty doses of debt - such investors employ when preparing businesses for sale.
"One of the things we've commented on in the report is the possible negative impact of Dick Smith ... retail investors being quite wary, particularly of private equity-backed IPOs around pricing," Dunne said. "That will be a challenge for Affinity and Tegel to address."
She said a possible solution was structuring deals so there was a staggered sell-down by vendors post-IPO and no reduction in their shareholding at the time of the float.
"The first four IPOs in the US so far this year have all been venture capital-backed and they've all had zero sell-down at IPO and a 180-day escrow period," Dunne said.
Chapman Tripp also expects last year's pickup in block trades of shares to continue into 2016.
Market outlook
• Increase in IPO activity this year, although not to the same levels seen in 2013 and 2014.
• Retail investors expected to be wary of private equity-backed floats after the collapse of Dick Smith last month.
