Partial SOE floats help NZX

16:00, Mar 11 2012

The Government's plan to partially float several state-owned enterprises could encourage a wave of further listings on the NZX, private equity sources say.

Companies such as snack-food firm Griffins and equipment hire firm Hirepool are in the hands of private equity firms, and observers say some of those investments might be ripe for onselling – either through a trade sale to another private equity player or to the public.

"There are a lot of private equity firms in Australia that own New Zealand businesses and it's just the question of how [they choose to exit them]," said Nigel Bingham, of Wellington's Pencarrow Private Equity.

Bingham recalled a wave of public offerings in the mid-1990s after Telecom was floated.

"I've got a hypothesis that once the SOE privatisations take place, the NZX is going to start to look a lot more attractive to investors."

Colin McKinnon, executive director of the New Zealand Venture Capital and Private Equity Association, agreed the SOE listings could well make private equity consider listed exits.


"It'll breathe a bit more life into the New Zealand stock exchange and therefore, there might be a window of opportunity where [private equity firms] think they could issue shares into the marketplace and investors would be prepared to take them up.

"I think that if you look at the firms that are owned by private equity in New Zealand at the moment and particularly by Australian firms where the fund managed-ownership of the firm has got to about five years or so, it's about time for them to do something."

Last year Tegel was sold by Private Equity Partners and ANZ Capital to an Asian player, and Independent Liquor was sold by PEP and Unitas Capital to Japanese brewer Asahi.

Both were companies that could have stayed in New Zealand, one source noted.

But Kathmandu and Summerset Group were partly or fully floated by their private equity owners in recent times, and PEP is tipped to sell Griffins.

Private equity firms could not hold onto businesses forever, said Bingham.

"Just because of the way that private equity works, they've got to exit those businesses and ultimately get the proceeds back to their investors."

Other sources suggested that private equity listings had not been well received in the past by a New Zealand public unwilling to pay top dollar.

Kerry McIntosh, an operational partner at Ironbridge Capital which owns Mediaworks and Envirowaste, doubted there would be a flurry of post-SOE floats.

"It's possible, and I think private equity will consider that as an exit option but I guess recently trade buyers and other private equity firms have been prepared to pay more for assets and if that situation doesn't change, you're unlikely to get assets listed in New Zealand."

New Zealander John Peacocke, of Australian-based Next Capital, said the SOEs would be great for the NZX, but they would also soak up a lot of institutional and retail cash.

"The more assets that are listed on the New Zealand stock exchange, [the more that] will create its own positive momentum in terms of liquidity and therefore greater attractiveness to potentially list on the NZX over time."

Privatisations created opportunities for private equity firms in another way, Peacocke added.

While utilities were not that attractive to private equity firms because their returns were usually regulated, the new owners of privatised SOEs often found businesses within the company that were ready to be spun off.

They were businesses "which either don't fit or which would be better off in other people's hands".