The Irish exchange is back in the big time, with the US also booming again, writes Kyran Fitzgerald.
The stockmarkets are back in business, big time. In the UK, banks have announced plans to float companies with a combined value of more than £10bn (€12.1bn).
New entrants taking a bow include Poundland, the UK owners of the rapidly expanding Dealz franchise, among other things, along with Pets at Home, the doggie store and vet chain now valued at £1.2bn.
Wall Street is also rocking and rolling. An avalanche of cash is driving corporate finance activity to new heights and boosting the number of new stock market entrants.
Last week, the world woke up to the news that Facebook had agreed to offer $19bn (€13.8bn) in cash and stock for the messaging service WhatsApp, in what was the largest ever purchase of a company backed by venture capital and, in the words of the Wall Street Journal, “easily the most expensive acquisition of a start up in recent times”.
This has also been the biggest year for US REITs (real estate investment trusts) since 2004, with their share values at six-year highs. In December, the private equity group Blackstone raised $2.35bn taking the Hilton hotel group back to the stockmarket in what was the biggest real estate IPO of 2013. This is a particularly sweet deal for Blackstone, which not so long ago was set to take a very large bath on its Hilton investment.
This year also looks set to be the busiest year for hedge fund launches since the financial crisis.
A good example is Elliott Management which operates a $24bn fund — it has emerged as an activist shareholder seeking to shake costs out of a series of high-profile technology public companies.
In Dublin, after a long dry spell, the depleted ranks of listed companies are beginning to fill up again.
The Iseq is benefiting from the highest number of flotations since the crisis took hold. International investors have been flooding into Irish property in search of bargains, and the property men, led by veterans such as Stephen Vernon and the Nowlan family, have been tapping into this sense of renewed confidence with the launch of REIT investments here.
The Green REIT has been active in the property market, joining in the bidding for the Central Park complex in Leopardstown owned by Nama, which is ramping up its sales activity.
Hibernia REIT raised €365m, with shares beginning to trade in early December. This was the fourth major listing on the Iseq in recent months, as stock exchange chief Deirdre Somers was quick to point out. These arrivals have included Dermot Smurfit’s GameAccount Network.
Apart from the Green and Hibernia REITs, other high-profile launches include Mincon, the engineering firm which manufactures hammers and drill bits for the global mining and natural resources sector.
Davy Stockbrokers has been joining in the fun, acting as advisers to Mincon, which launched on the Enterprise Securities Market in Dublin and the alternative investment market, AIM, in London.
The Sunday Times yesterday reported that Dalata, the expanding hotel group run by former Jurys Hotel chief executive Pat McCann, is planning to raise more than €100m in a stock market flotation. McCann, a respected industry veteran, operates the Maldron brand and has taken over the running of a host of struggling hospitality properties.
There has been talk of two more REIT launches by US group Kennedy Wilson and IPUT.
It is all a far cry from the noughties when the traditional activities of the Irish stock exchange went into contraction mode as established names departed the Iseq for either London or a return to private ownership. This process long preceded the global and Irish financial implosion of 2007/8.
In the early noughties, small investors were badly burned by the Eircom flotation and subsequent premature privatisation, while shareholders in the one-time investment darling, Smurfit Group, fell out of love with an underperforming stock and with its Dear Leader, Michael Smurfit.
Smurfit was likewise more than relieved to remove himself from the public glare as the group departed the exchange. However, now known as Smurfit Kappa, the group has since returned to the Iseq.
One of the worst periods for the Irish stock exchange was between 2001 and 2004 when Alphyra, Arnotts, Green Property, Smurfit, Riverdeep, and estate agents Sherry FitzGerald, all headed for the exit as part of a raft of management-led buyouts.
Golden Vale and First Active were swallowed up by acquisition as speculation centred on the upfront cost of public listings.
Adviser fees in the case of the Eircom flotation amounted to almost €50m. A number of tech companies looked at the Iseq, but rapidly pulled in their horns. Supporters of IPOs have pointed to research evidence that while going public entails considerable upfront cost, the valuations achieved at IPO can exceed those secured in a simple trade sale by 20% or more. Certainly, equity group Blackstone would heartily agree.
On the home front, Kerry Group (1986), Paddy Power (2000), and Tullow Oil have been the stand-out beneficiaries from the flotation process, while Jefferson Smurfit Group levered itself into a position of international market dominance through the late 1980s and well into the 1990s.
The big minus has been the failure of the Irish Stock Exchange to come anywhere near to matching the success of its Israeli counterpart in developing a public-listing vehicle suited to the needs of emerging technology companies. There are few signs that this could change soon.
This is despite positive results on Irish entrepreneurship from the Global Entrepreneurship Monitor and a reasonable level of support for start-up entrepreneurs from Enterprise Ireland.
Richard Bruton, the enterprise minister, has also been busy burrowing away trying to lever US venture backing for Irish tech start-ups.
Back to Blackstone: Its Hilton float looks to be a masterclass in how to turn adversity to advantage through a version of financial judo. In 2007, Blackstone paid $26bn to take the Hilton chain private at the top of the market, in one of the biggest deals of the private equity buyout boom.
At one point, losses stood at several billion, Blackstone having written down the value of its investment by a third. In 2010, however, it took advantage of a moment of panic, persuading bank lenders to drastically write down the value of their debt. Blackstone bought back a lot of the debt at a discount. The group got its timing perfect as Ben Bernanke succeeded in his plan to revive the US economy.
Today, Hilton has a market value of $21bn and Blackstone holds three-quarters of the equity. Investors may not fare so well. They have paid almost 15 times earnings for the stock. Only time will tell whether the individuals and investment funds piling into the new corporate kids on the stockmarket block will be popping the champagne corks in years to come. One thing is sure: Many financial advisers and wheeler dealers will continue to get fatter, at least in the pocket.
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