Earlier this year we asked whether Private Equity should be involved in High Street retail after several well-known chains had indicated their intention to float on the Stock Market.
They included Fat Face (77% owned by PE firm Bridgepoint), Card Factory (owned by PE firm Charterhouse) and Poundland (76% owned by Warburg Pincus).
Several of these IPOs have now taken place, and one has been cancelled. Fat Face has withdrawn its proposed IPO after deciding that it would be unlikely to raise money at the level it had hoped.
This was after shares in Card Factory fell 10% a week after its launch and Pets at Home losing 3% since its float in March 2014, and despite Fat Face having increased sales to February 2014 by 8.2% following the previous year’s pre-tax losses.
Plainly PE investors are adopting a more cautious approach to the old financially driven model for realising value. The old model often involved a public to private acquisition, repaying private equity owners by loading the company with debt, and then flipping it back into public ownership.
While the prospect of a quick exit has focused the attention of Private Equity owners on public markets, all too often the valuations don’t leave much for new shareholders. The recent decline in shares shortly after being floated is a reminder of the old model that made Private Equity owners so wealthy, often at the expense of public owners who sold cheap and bought back expensive.