Hogg Robinson’s shock announcement to revive its IPO follows neatly on from the comment in the last issue of IFR Buyouts (45) – financial sponsors are firmly in the driving seat making it an uncomfortable ride for the banks.
As private equity firms come under increasing pressure to raise money, deploy money and realise investments they are not only making their banks work harder for mandates, they are also becoming much more complex in their demands.
In retrospect the whole Hogg Robinson story has been extraordinary. Not only did Permira manage to engage four heavyweights – Citgroup, Credit Swisse, Lehman Brothers and Merrill Lynch in a competitive IPO process which saw the four banks competing against each other for the mandate, it managed to do this for a rather uninspiring mid-market company.
But the story did not stop there. The Hogg Robinson IPO was then re-launched last week on an accelerated basis with a revised deal structure. Citigroup and Merrill Lynch were the joint bookrunners, while Credit Suisse and Lehman Brothers were demoted in the revised deal of just £200m, less than half the amount Permira originally thought it would raise
Permira clearly has its issues with Hogg Robinson in what appears an almost desperate attempt to get rid of it, this can’t do anything to help investor appetite and it will be interesting to see how it fares post IPO. But for the purposes of this argument it is how the banks react which could be most significant for the immediate future of the industry.
Bankers involved described the HR deal as a dog’s dinner with one banker reported saying, “It is complete nonsense”. The general consensus is that the ‘competitive process’ was most certainly one of the main reasons for the failure of the initial IPO. In short the banks have been pulled through an almost farcical process which ultimately failed, and instead of delivering on fees and raising a significant amount of money it will arguably raise less than it may have done through a more traditional process.
The competitive IPO process therefore points towards a peak in the market. But the bubble although arguably resting on a pin prick is shored up by a level of liquidity and a continuing benign interest rate environment which most appear to agree will keep it afloat.
But although positive market conditions may shore up any overheating or ‘bursting of the bubble’, industry commentators also believe that unless the banks begin to reign in the private equity houses the day of reckoning could come sooner than expected as more processes topple over and structures become too complex.
The hope now is that the banks will realign themselves and start to reign in the private equity houses and get the market back into a more sensible shape.
According to one financial advisor it is imperative that the banks start to take control and say no to some of the more colourful demands of the financial sponsors: “I don’t think we will see the bubble burst but part of not seeing this happen is the proviso that the banks will begin to stand up to the sponsors and say no”.
See new analysis p.5