Lead managers in the float of garment maker Pacific Brands - the largest IPO in Australia this year - believe they could have got more than the A$2.50 per share price if the vendors hadn't held back.
The shares were priced at the higher end of the institutional bookbuild range of between A$2.25 and A$2.60, but says Guy Fowler, managing director of investment banking at UBS, the vendors didn't want to push it any further. "They really wanted to leave something on the table so that the shares would trade well in their first few weeks."
UBS and Macquarie Bank acted as joint lead arrangers on the heavily oversubscribed deal which valued the company at A$1.25 billion and will see both retail and institutional investors scaled back in their allocations.
In the end, retailers will secure about 45% of the shares, a higher than usual amount in the history of Aussie IPOs. Fowler puts the level of retail demand down to Pacific Brands' dividend policy and its simple story. "Everybody understands a company that makes clothes and sells them," he says, adding that the high profile brands of Bonds, Sleepmaker, Berlei, Slazenger and KingGee also attracted buyers. "Promina was a good float last year but it didn't engage the retail investors like this deal because people didn't understand the complexities of general insurance."
The institutional book is split between domestic and offshore investors. Orders were received from the US, Europe and Asia following a three-and-a-half week roadshow and over 100 one-on-one meetings. More than a dozen Asian accounts from Hong Kong and Singapore participated. "A lot of US funds bid from their Asian offices as well as from their US headquarters," says Fowler. "We got orders from every one of the institutions in Asia that asked for individual meetings during the roadshow."
The fact that the management persuaded UBS and Macquarie to hold back on pricing is interesting given that the bulk of the company's shares are owned by private equity investors keen to maximize their return. CEO Paul Moore and other directors only took a small stake in the company three years ago when it was bought from struggling conglomerate Pacific Dunlop.
Moore, who is about A$17 million richer after the IPO and has been contracted to run the company for another five years, is rumoured to be reinvesting A$3 million in shares on the public market - a voluntary decision based on his belief in the company's future. If Pacific Brands' shares trade in line with the market when they list at midday today, Moore will have made a shrewd decision. The average return for Aussie IPOs in the March quarter was close to 30%.
Private equity investors CVC Asia Pacific and Catalyst Investment Managers will net a profit of about A$1 billion from the sale having paid an enterprise value of A$780 million in November 2001 and taken a A$100 million capital return during the course of the deal.
"We also made our equity investment when the Australian dollar was trading in the mid-50s to the US dollar and we are exiting when the dollar is in the mid-70s, so we have made a significant gain on the currency," says Andrew Cummins, managing director of CVC Asia Pacific.
Cummins says the strength of Pacific Brand's management was key to the company's success. "This goes to show that it pays to back people who know their business inside out, who work well as a team and who are motivated by the clear objectives of a buyout, which is to maximize their return. These things form a magical combination for financial backers like us."
Pacific Brands sells 200 million pieces of clothing in Australia each year which equates to eight pieces per person. About 80% of its garments are made in China where the company employs more than 6,000 people.
