Dick Smith IPO scores big return for PE owner, modest gains on debut — Reuters

Shares in Australian electronics retailer Dick Smith Holdings Ltd debuted around their offer price on Wednesday after its $315 million initial public offering generated solid demand and a strong, swift return for its private equity owners.

Dick Smith’s listing comes at a busy time for the Australian IPO market which remains wary of share offerings by private equity-backed investors after some high-profile failures, most notably department store company Myer Holdings Ltd. Myer was listed by TPG Capital and Blum Capital in 2009 and has not traded above its A$4.10 issue price.

But given skepticism about private equity exits, Dick Smith’s shares were priced for a fillip, said Sondal Bensan, an investment analyst at BT Investment Management, which bought shares in the IPO.

“I think that was all taken into account during the bookbuild process,” he said. “I think they priced it to … cancel out some of those potential risks.”

Australian private equity firm Anchorage Capital Partners cut its stake in Dick Smith to 20 percent from 98 percent through the IPO. Anchorage brought the company from Woolworths Ltd just over a year ago for an initial payment of A$20 million and subsequent payments totalling A$74 million.

Dick Smith shares opened at A$2.28 compared with its A$2.20 offer price and last traded at A$2.19, valuing the company at A$518 million.

Doubts have been raised about the company’s fast turnaround. Indeed, Simon Bonouvrie, a portfolio manager at Cadence Capital said he wants to monitor the company’s performance as a listed business for several sets of results before making any investment.

“I’m often skeptical of businesses that come out of private equity, especially ones that are only owned by private equity for a short period of time,” he said.

“We’ve seen it in the past with Myer … (that) had a lot of enthusiasm pre the IPO but it turned out to be a poor investment,” Bonouvrie said.

PRIVATE EQUITY EYES EXITS

The Dick Smith sale comes as other private equity-backed businesses are going public, encouraged by a share market trading near five-year highs.

Australian insurer Cover-More Group is seeking to raise A$521 million in an initial public offering, with Sydney-based private equity firm Crescent Capital Partners cutting its shareholding in the company to 13 percent from almost 83 percent.

Nine Entertainment Co Pty Ltd , one of Australia’s best-known media companies, is set to list shares on Dec. 6, about a year after it avoided receivership with U.S. private equity funds Oaktree Capital Group and Apollo Global Management taking control in a more than $3 billion debt-for-equity swap.

Upping the tension, last month, KKR & Co called off a planned A$500 million IPO of mining services firm Bis Industries Ltd amid negative sentiment for companies exposed to the resources sector.

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