Friday’s Wall Street sell-off and the apparent inevitability of a rate rise tomorrow guaranteed that Myer Holdings would be floated into a falling and increasingly nervous market. However, while the initial experience for Myer shareholders might have come as something of a shock to novice investors it could have been worse.
When the $4.10 a share final price for the float was set after last week’s bookbuild, it looked like the private equity sponsors had just mistimed their exit. A week or two earlier and the price would have been 20 to 30 cents a share higher, perhaps even more. A week later, of course, and they might have either had to either rethink the pricing parameters or pulled the float.
With hindsight, TPG and Blum Capital almost timed the float to jump through the perfect window of opportunity provided by the strength of the market’s rebound since its March lows. They were only a week or two out, but still exited before the sell-off developed real momentum in the US on Friday evening.
That less-than-optimum timing at least took the edge off what might otherwise have been a quite brutal experience for Myer investors. At $4.10 Myer was reasonably priced in the circumstances. It would have been priced for something close to perfection had it been around or above the middle of the $3.90 to $4.90 a share indicative pricing range.
However, with investors becoming concerned again about the continuing fragility of the state of much of the developed world’s economy and financial institutions, any new listing was going to be battered today.
Myer doesn’t yet have the record as a listed company, or the settled long-term register, that would take the edge of the investor nervousness. Indeed, the polarised debate about its ability to generate top-line growth, and the level of cynicism about private equity’s legacies, made it especially vulnerable.
It is also apparent, with hindsight, that the retail demand for Myer wasn’t quite as strong as the float promoters would have liked – the scale backs probably weren’t as aggressive as one might have expected for an offer of such an household name – although Myer has ended up with a register fairly evenly balanced between retail investors and institutions.
With another rate rise imminent – perhaps a 50 basis point Cup Day rise – and chief executive Bernie Brookes warning that Christmas won’t, in his opinion, be “fantastic”, it perhaps isn’t surprising that Myer closed 8.5% below the issue price at $3.75 a share, on heavy turnover.
However, that performance had little to do with Myer’s own expectations. Brookes might be predicting a lackluster Christmas but he still believes Myer will do about 3% better than last year and isn’t backing away from its forecast of 3% sales growth and 10% profit growth for the full financial year.
He needs to deliver, because many of his retail investors are also customers and their initial experience of Myer as an investment rather than a shopping destination hasn’t been a pleasant one.
Myer and its management have, of course, been stress-tested over the past three and a half years and now have a better understanding of how the business should respond to tougher conditions, as well as a much improved ability to direct that response. The new Myer model is far more flexible and responsive to changes in retail conditions than the old.
The critical question for the floats now in the pipeline that were hoping Myer would prepare the ground for their own listings is whether they have missed the boat.
Kathmandu and Archer Capital’s Ascendia sports business were the next retailers scheduled to list. The market conditions and the Myer debut might now force them to revise their plans, or cut their asking prices very significantly.
The Myer float timetable took about six weeks, with about a month between the prospectus being issued and the bookbuild being completed, which explains why it was impossible for the vendors to perfectly time their exit.
A month in the current conditions represent a lot of time and a lot of market risk, as Bernie Brookes – or TPG
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