| 2004 - the year of the IPO? |
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| While one key trend in the Irish capital markets last year was companies going private, with eight stocks de-listing from the Irish Stock Exchange during the year, and another being the number of private placement transactions, with over €2 billion raised in this manner, five months into 2004 a new trend has taken over - the re-emergence of the IPO Sheila O'Donohue writes. |
The Irish corporate finance market in 2003 was marked by a number of trends. Ireland was the fourth largest region for private placement issuances amounting to €2 billion in fund raising, with companies such as the ESB, Kerry Group, Greencore and Bord Gais using placements, which are private bond transactions under which terms are established between borrower and lender, to raise funds. Another key trend was the de-listing of firms from the Irish Stock Exchange, with eight listed firms seeking to depart from the ISEQ in 2003.
Just five months into 2004 and a new trend has emerged - initial public offerings (IPOs). There appears to be an end in the drought of new issues across Europe with IPOs to the value of €5.6 billion so far this year, exceeding all of the 2003 sum. In Ireland, following on from eircom’s recent return to public status, the well- known drinks and snack company C&C was next up, and made its stock market debut on May 19th. The Clonmel based manufacturer and distributor of branded beverages and savoury snacks boasts a number of high profile brands including Ballygowan, Club Orange, Club Lemon, Bulmers, Tayto, Carolans and Tullamore Dew. It raised €400 million from this move, with a market capitalisation of almost €800 million.
This IPO follows the footsteps of eircom, the well know telecommunications firm and CNG, the Kerry online hotel room booker. In contrast, the German market has had no IPOs since 2002 with two significant IPOs pulled in March this year - X-Fab, a semi-conductor company and Siltronic, the world’s third largest maker of silicon wafers. The successful IPO of Oriflame in Stockholm, the Swedish cosmetics group on March 24th serves as welcome news for the founding family and the private equity investor group.
C&C opted for a dual listing in the main markets of Dublin and London; the latter having witnessed a series of relatively small placings this year but mostly to the Alternative Investment Market (AIM), its secondary market including the film and TV studios group Pinewood Shepperton. Pending flotations there this summer include Premier Foods, (a ?1.2 billion value), well known for its brands Ambrosia cream rice, Typhoo tea, Glaze Honey and Sun Pat peanut butter; Umbro sportswear group (a €300 million value) and Halfords, the car parts company (between 900m-1.5 billion).
C&C share a number of features in common with eircom in that its sale is aimed at institutional investors; it promises a generous dividend payout (close to 5 per cent) and finally, part of the rationale for the IPO is to release value for the major shareholder. BC Partners, the British venture capital firm owns 92 per cent of C&C having acquired it from Allied Domecq for close to €800 million in 1999. Allied Domecq sold out after thirty years in control in order to focus on its international brands.
In 2001 BC Partners managed to replace most of its equity stake with borrowings. Ever since C&C’s attempted flotation in 2002 was pulled, this venture capital firm sought to explore alternative exit routes for their investment. Efforts to secure a buyer via a trade sale failed but they would appear to have kept pressure on management to undertake a number of initiatives to increase the value of their investment.
These include outsourcing production of the Tayto brand and attempts to divest the brand altogether, which is 50 years old this year. Having acquired Tayto for €88 million in 1999 when it enjoyed 52 per cent market share, strong competition from rivals especially Walkers with its arrival in 2002 resulted in a loss of market share to 40 per cent, but a recent advertising campaign appears successful in winning back customers.
Similarly, management have responded to challenges posed to its drinks portfolio of brands. These include absorbing half of the cider duty increase of 87 per cent introduced in the 2001 Budget to coping with greater scrutiny on licensing laws, and the more recent introduction of the smoking ban.
Over the past two years new products have been introduced to adapt to changing trends including Bulmers Light and Energiser, the sports drink. The company has undertaken significant advertising campaigns to support both these and its existing brands. Its debt burden had grown to €720 million in 2003 but is now reduced to €500 million. This was achieved through a combination of divesting itself of some of its Italian brands for €150 million in December 2004 and from the strong cash flows generated by its current product range.
The chief executive, Maurice Pratt, heads a strong management team at the operational level. More strategically, recent board appointments of both experienced and very successful business people suggest a strong signal of the company’s intention to use this stock market listing effectively.
Contrasting views of the BCPartners block holding post-IPO is that it may serve as a signal of credibility to the market thereby supporting the share price or alternatively it may have an adverse impact because of the overhang. It is perhaps in better shape now for this move despite concerns that is has mature brands. The private equity investors would appear to have used the refinancing debt package rather effectively as a disciplinary process and in reducing their own risk. They will still have a strong vested interest in the new status of C&C. |
Dr Sheila O Donohoe is a lecturer in the department of accounting and economics at the Waterford Institute of Technology.
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| Article appeared in the May 2004 issue.
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