The IPO gravy train

The private equity sellers of Kathmandu are not the only ones who will benefit from the company's decision to offer shares and float on the share market.

Examination of the fine print in the offer document shows there are plenty of reasons for the business professionals to be happy that floating companies seems to be coming back into vogue.

The issue costs are estimated at about  $15 million. While the offer document doesn't say so, it appears that estimate may be based on the middle of the price and number of shares sold range. The company accepts in the offer document that the final bill for expenses could be higher than that. The good news for soon-to-be shareholders is that the fees are coming out of the amount the vendors of the shares will be taking  rather than being billed directly to the company.

The biggest beneficiaries of issue expenses will be the joint lead managers Macquarie and Goldman Sachs JBWere. For GSJBW, the Kathmandu offer is double the pleasure because funds managed by its private equity arm are vendors of just under half the shares for sale.

The two lead managers could share a fee of up to 3.25 per cent of the total raised. If the very top indicative price was achieved, this would be a thumping $14.8m, while at the midpoint it would be a still impressive $12.9m.

The two firms won't keep it all,  however, as various fees will have to be paid out of this to other brokers also getting in on the act and helping to sell shares.

Still, the brokers are not the only ones invited to this party.

Clayton Utz, as Australian legal adviser to the float, is picking up a cheque for A$440,000 (NZ$542,000). In New Zealand, legal firm Chapman Tripp will be banking NZ$350,000. "Investigating accountant'' PricewaterhouseCoopers Securities is set to pick up A$275,000 and Deloitte Touche Tohmatsu will be getting A$140,000 for providing tax advice.

While it is not an issue expense as such, newly appointed chairman James Strong will benefit personally if the IPO and subsequent first year or so of listing prove successful.

Strong has been granted an option to buy up to A$3m worth of Kathmandu shares at whatever the issue price is. The option is exercisable 14 days after Kathmandu reports its results for the July 2010 year and will expire in November 2011.

Direct comparisons between share floats and the amount they cost appear virtually impossible because of different circumstances between the companies.

Possibly the most readily comparable float in New Zealand  was the ill-starred Feltex float in 2004. It raised $254m and cost a thumping $20m.

In the same year retailer Pumpkin Patch (also a private equity sale) raised about $100m at a cost of around $2.5m, while in 2003 Freightways (again private equity) raised in excess of $140m at a cost of around $5m.

All this pales next to the float that is really kicking off the new wave of IPOs. 

The A$2.3 billion Myer sale, if it achieves in the mid range of prices, will cost an eye-watering A$83m.

- © Fairfax NZ News