Australian private equity firms may shun IPOs

Date: Wednesday, April 28, 2010
Author: Reuters

Private equity firms looking to sell some of their mid-size Australian businesses are finding strong enough interest from trade buyers so that they may be able to avoid IPOs, after a poor run for recent stockmarket listings.

Following a two-year slump during the global financial crisis, when divestments were near impossible, private equity sales are back on the agenda as stock market valuations improve, enabling listed rivals to make bids, and as bank financing re-opens.

Among the companies with dual-track sale processes underway, in which both sale and listing options are considered, university programme provider Study Group, owned by CHAMP and pallet maker Loscam, owned by Affinity Equity Partners, may be headed towards sales rather than floats. [ID:nSGE63M078]

"You are seeing more examples now of firms considering dual-track processes. If you go back a few months, it felt like an IPO was the only potential option available," said UBS co-head of equity capital markets Andrew Stevens.

Now, trade and private equity firms are returning as buyers of assets.

"The IPO market is a bit soft, but the options available have increased as well," Stevens said.

IPOs have had a slow start to the year, with the underwhelming A$516 million ($470 million) float of marine services group Miclyn Express (MIO.AX) the only one of any size. The stock is trading 8 percent below its listing price. Fund managers said it was not priced at a big enough discount to rivals. Top department store Myer (MYR.AX), floated by TPG last November, is trading 22 percent below its listing price.

PLENTY OF INTEREST

Study Group, which could fetch up to A$600 million ($550 million) according to local media reports, has attracted interest from international and local companies, a source familiar with the situation told Reuters.

"Because there are a number of significant players who would see a good fit with Study Group, you could say the trade side of Study Group is at least as strong as the IPO side," the source said, speaking on condition of anonymity because the matter is confidential.

Preliminary bids for Study Group are due this week and advisers on the sale are Credit Suisse (CSGN.VX) and Deutsche Bank (DBKGn.DE).

Among potential buyers for Study Group are the Australian arm of Kaplan International (WPO.N), which declined comment, and locally listed rival college program provider Navitas (NVT.AX), whose shares have more than doubled in the past year as investor interest in the education sector has grown.

A Navitas spokeswoman declined to comment on Study Group, but said Navitas has "a look at acquisitions throughout the year".

The owners of Loscam, which could fetch A$500 million to A$700 million, are expected to decide by the end of May whether to hold an IPO after second-round bids are received. Australian private equity firms Pacific Equity Partners (PEP) and CHAMP are among firms advancing to the second round, sources told Reuters.

Loscam makes and hires out wooden and plastic pallets and is a competitor to listed Brambles Ltd (BXB.AX), the world's top pallet supplier.

END OF THEIR LIFE

Private equity firms generally hold companies for three to five years, and a raft of acquisitions during the boom years of 2006 to 2008 are nearing the end of their life in private hands.

Other possible sales or floats this year include the Hoyts cinema chain and REDGroup bookstore chain, both owned by PEP. [ID:nSGE62300R] [ID:nSYD276184]

Tax worries have also delayed private equity sales, after the Australian Taxation Office threatened to tax proceeds of sales at a higher rate. Final rulings on the tax issues are due on May 26. (For details, click on [ID:nSGE63K04X])

Credit Suisse head of equity capital markets, Campbell Lobb, said the pipeline of IPOs was pretty strong, and the second half of 2010 would see more floats.

"I do think the equity market is ready for more IPOs but at the same time there is quite a lot of competition from other private equity buyers and there is competition from trade buyers.