Why Irish firms are choosing the IPO route
From Malin to Petrogas, Irish companies are abandoning private equity advances in favour of raising money on the open market
Published 07/06/2015 | 02:30
From hotel groups to house builders to petrol stations, the IPO is back.
Cairn Homes is the latest Irish corporate to go public, planning to raise €400m with a London listing to fund residential housing projects in Dublin and Galway. It will be the first Irish construction firm to join a stock market since McInerney Holdings listed on the Irish Stock Exchange (ISE) in 1997.
"Cairn's IPO is the culmination of a lot of thought and work," Cairn Homes chief executive Michael Stanley told the Sunday Independent. "We have a desire and ability to create something new and exciting in the Irish property market, and an IPO allows us to do that in a responsible and sustainable manner."
His company's intention to float was revealed just days after Applegreen parent Petrogas announced its intention to IPO in a dual listing in Ireland and England, raising €70m to build and buy petrol stations across the UK.
There have now been 10 IPOs or new listings on the ISE since 2013. These include pharmaceutical group Malin, which raised €330m in March, one of Europe's biggest-ever life sciences flotations.
In 2014 Dalata raised €265m, Irish Residential Properties REIT raised €200m and back-pain treatment company Mainstay Medical raised €18m on the ISE.
That pace of activity is expected to continue for the remainder of this year. "2015 listings are continuing a strong trend that began post-financial crisis," said ISE director of strategy Aileen O'Donoghue.
Her exchange is fighting hard to encourage Irish companies to list at home. It launched an "IPO Ready" training programme last year to coach 15 IPO candidates in preparing for the process and has made it easier to complete dual listings, soon to roll out a new Atlantic Securities Market (ASM) which is closely aligned with the regulatory requirements of US exchanges.
For Dalata Hotel Group chief executive Pat McCann, an IPO was a no-brainer. He steered one of the first post-recession Irish flotations. His company had plenty of other options for finance, turning away advances from private equity funds.
"It was without a doubt the best option. I love the public markets. If you have a good story and a good track record, they are the best place to be.
"We considered private equity. But private equity money tends to behave differently; there is a five to seven-year term and then the fund wants out.
"We are building a long-term business so we decided that just wasn't right for us. We also looked at doing a real estate investment trust (REIT) but the problem with that was that the REIT would have to sit outside Dalata, we would have had to operate as a service provider for the REIT and it raised conflict of interest problems."
Both in Ireland and internationally, many of the most promising tech companies have opted for private equity and venture capital investment rather than going public. Look at Trustev and CurrencyFair, or Uber, Pinterest and Snapchat.
"That's been a trend in the last few years, where very high-profile technology firms have opted for private equity and venture capital over floating," said Con Quigley, corporate finance partner at accounting firm BDO.
"But I see that as an aberration. Some of these venture capital deals give the appearance of a very high valuation for the company - but with lots of strings attached.
"The deals are often very complex in structure, with lots of hidden rights for the fund or venture capitalist - they have protections like the right to convert their investment into a loan or take more equity if profit targets are not hit after a certain time.
"So the deal appears better than it is. It gives management the ability to inflate the value of their company - and at the upper end of the technology sector that is very powerful, very persuasive," continued Quigley.
Dalata was preparing to go public from the day it was founded in 2007. This meant the process, once it began, happened quickly - the decision was made in December 2013 and the company floated four months later, said McCann.
"We deliberately set the business up in 2007 as a quasi-PLC, with the right system and corporate governance approach in place. It can take an awful lot longer if you are not prepared".
It is never too early to start preparing for an IPO, according to Quigley.
"In 2013 we worked with computer games designer Keywords Studios, which floated on the London AIM - we do a lot of work on AIM. Some people might have thought it was too early for that company to go public.
"But if the story is good enough and the management team is backable, it's almost never too early. You can't wait for perfection before going for it, you are never going to have that.
"It is the people running the business that investors look for over anything else," McCann agrees. "The main thing that investors are buying into in any IPO is the people running the business. How believable are they? What's their track record? Your Franklin Templetons, your Marketfields, your Zurichs - that's what these investors are looking for. Once your people are good, that's half the battle."
The primary disadvantage to IPOing, all agree, is cost. Regulatory requirements mean big teams of accountants, lawyers and stockbrokers.
"There is a huge amount of preparation ahead of an IPO across financial, legal and corporate aspects along with a raft of advisors, so it is not a decision to be taken lightly," said Cairn Homes' Michael Stanley.
Advisors take on risk too. Sponsoring an IPO involves some risk for these professionals because costs are based partly on the successful performance of the IPO.
"We need to see more appetite to take this risk", Quigley believes.
Then there is the time and non-financial resources that IPO-ing requires, as Pat McCann remembers all too well.
"What I would tell any company thinking about an IPO is that you must be prepared to spend a lot of time on investors.We did 100 meetings in four locations in 10 days with investors. You must be prepared to put the time in."
The owner of Batchelors and Odlums was nailed on to float last year but never pulled the trigger. Private equity group Capvest will ultimately need an exit.
The bailed out bank is slowly limbering towards a return to the markets once its capital structure is tidied up. A new chief executive may speed up the process.
The country's biggest telco pulled out of a float late last year as markets wobbled. It just turned down a €3.2bn buyout approach. Another go at an IPO may be on the cards.
The drug development company founded by Ireland's best known scientist, Professor Luke O'Neill, said it will consider an IPO after completing the second stage of trials on a kidney drug.
Cathal Friel's Raglan Capital has teamed up with Irish healthcare and life-science veterans to float a new medtech firm, Horizon Medical Technologies, on London's AIM market later this year. It's also looking at a pharma IPO.
Sunday Indo Business