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Hirepool IPO pulled

Hirepool’s initial public offering has been withdrawn after institutional investors baulked at the offer price.

It is understood local fund managers could not accept a last-minute discount to the offer price during a book build over night.

Hirepool's majority owner, Australian private equity company Next Capital, and its co-owners Macquarie and Hunter Powell Investments had put an indicative price tag of $1.10 to $1.50 a share on the company.

The issue had hoped to raise between $175.3 million and $261.8 million with about $130 million of new capital.

However there was significant disquiet from some local institutions at the price.

“The way I figure it, the offer is being priced, at the bottom end, 20% too high," one market source told NBR’s Shoeshine columnist last week.

NBR Online understands local fund managers struggled to get to even 90c a share.

Joint lead managers Deutsche Craigs, Macquarie Securities (NZ) and UBS New Zealand sent an email to non-affiliated brokers this morning to confirm the IPO was not going to proceed at this time.

NBR understands Hirepool’s financial sponsors may now try to attract a trade buyer or private equity buyer.

Brokers 'gutted'
The equipment rental company has since issued a statement confirming the IPO has been cancelled.

"Given the strength of the New Zealand economy and the positive outlook for Hirepool, Next Capital Pty Limited on behalf of the Next Capital Funds, have determined that they are comfortable retaining control of the Hirepool business," the company says.

Organising brokers are understood to be "gutted" at the outcome. However, the failure to bring Hirepool to market is not expected to be a significant damper on further upcoming IPOs such as Scales Corp and MetroGlass, and this week's listing of Serko and Gentrack.

Demand split
While Hirepool had seen good demand from retail investors, institutional investors weren't confident there would be enough support for the stock after it listed, especially with Next remaining a relatively large shareholder. The IPO would have come amid a swathe of stock sales, including Serko, Gentrack, ikeGPS and Scales Corp, giving investors plenty of choice on where to put their funds.

Existing shareholders are said to be happy to remain owners of Hirepool, given the outlook for the economy and the business.

Hirepool is projecting profits from 2015, after years of losses, having squeezed out costs since buying major rival Hirequip out of receivership last year and using its initial public offering to pay down debt, according to its prospectus.

Hirepool is forecasting a net profit of $25 million for the year ending June 30, 2015, from a pro forma loss of $17.8 million in the current year, according to the company’s prospectus. After adding back finance costs, depreciation and amortisation of Hirepool and Hirequip, pro forma aggregated earnings before interest, tax, depreciation and amortisation are forecast at $34.5 million this year and $60.5 million in 2015.

Hirepool alone has posted net losses each year from 2009, according to the prospectus, mostly reflecting finance costs. Hirequip achieved a profit in 2012 and for the 10 months to May 6 2013, following three years of losses, the figures show.

Following the merger, Hirepool is the nation’s only generalist hire equipment company, although it has only about 19.6 percent of the market based on last year’s application to the Commerce Commission to buy Hirequip. Those figures included an estimate that the building hire industry generated $780 million of equipment hire revenue in 2013, while Hirequip’s revenue was $153 million.

The company had planned to cut interest bearing debt to $85 million on listing from $203.6 million at June 30.

Additional reporting from Businessdesk


More by Duncan Bridgeman

Comments and questions

I guess the music stop before any body got stuck with a dodgy seat - good to see local punters didn't

No Surprise - was just really trying to raise money to repair the vendor balance sheets. Very little interest was apparent at the Golf Club.

All good things start and end at the Golf Club.

Haven't you heard that mountain biking is "the new golf" so I guess we have to add that very little interest was apparent on the tracks! :)

Good on the institutions for putting pressure on this float.

Hopefully the insto's will do the same with other impending floats that the PE funds are trying to rape the punter with.

While this did not take my fancy - I'd rather than any day than touch one of those insane tech company listings.

I wonder if Next would make a complaint to the Commerce Commerce?

You could argue that these instos getting together with an 'understanding' around pricing pressure is anti-competitive behaviour that falls foul of s27 of the Commerce Act?

Some quality from a post on another site:

"Yep, I see it as a positive that the markets are not completely out of control.

Coming into this week, I was starting to wonder if you could float a cage of wild possums on the NZX.

Now, it appears you could only get away with this if the possums were stored in the cloud."

At least the institutions were steadfast, not wanting to take any loss due to vendors over pitched pricing. They are not stupid, seeing that Chch rebuild is a one off event albeit a very big one, the benefit to HP will be temporary and then they will be left with tired equipment and diminishing revenues.

Now all those who sold XRO to get some cash can buy back in, down another 8% today. This is going to be a salutary lesson to the momentum buyers. They are probably quite young and do not remember the exuberance of 1986 and 1987 when any old business plan was floated onto an ever appreciative line of Taxis drivers, shoe shine boys and mum n dads.

Well done Kiwisaver Fund Managers, probably the ACC, and others who refused to buy high.

An IPO involving a previously in receivership company (HireQuip), bought using debt, project major increase in earnings from merger benefits, put a big price tag - sorry, echoes of Feltex for those of us who have been around a while. Good luck to the stuck shareholders, especially Macquarie who sold Thames (undrinkable) Water and Moto (going nowhere)-Way to NZ Investors via EPIC.

Exactly. The announcement of the IPO even said that they had taken a failed company on, were being run by the failed companies CEO, and that the current major shareholder wanted to divest.
I'm not sure how anyone would derive enough confidence in this company to invest.

I am not surprised. The share price did not even closely reconcile with the NAV of the combined Hirepool and ex-Hirequip businesses. It would be an irresponsible broker to recommend this to their clients based on the financials.

Burger flip that hasnt worked