Hogg Robinson drops IPO

In a blow for the competitive IPO process the Permira backed travel services group Hogg Robinson (HRG) has cancelled its planned £190m flotation.

Claims that perhaps unease about the sector following the August terrorist attempts at Heathrow, and a general downturn in market conditions had eroded investor confidence and interest in the business are doubtful. It is far more likely that it was the competitive IPO process, much loved by Permira, which went a long way in quenching investor appetite.

The cancellation of the IPO of Hogg Robinson – six years after it was taken private by Permira – which would have given the company a market valuation of £380m, caused concern yesterday. In recent weeks almost every bank cited HRG as the first significant test of investor demand since the summer break. With the deal given bellwether status cancellation was not the outcome anyone hoped for.

“The market had looked benign for the rest of the year, but this suggests that was a best case scenario”, says one UK banker.

After a week of pre marketing Hogg Robinson announced the price guidance for the planned IPO two weeks ago. The price range was set at 140p–220p, giving the company a market capitalisation of somewhere between £338–£401m.

However the seller embarked on a competitive IPO process which saw bookrunners Citigroup, Credit Suisse, Lehman Brothers and Merrill Lynch competing for the mandate.

The competitive process sees banks allocated to investors to pilot fish the IPO, with the feedback obtained contributing towards the selection of the bookrunners. This leads to high levels of competition and one bank involved said that the Hogg process had been ugly. In the end all the banks involved in pitching were subsequently appointed but the competition between the banks is thought to have led investors to mistrust the valuation put on the business.

The general feeling in the market is that the pulled IPO was all about overly aggressive pricing. The valuation required a buy in on acquisition based growth, and some investors felt too much of this was priced in. And, according to sources, a number of one to one meetings were turned down by investors as many felt insufficient changes had been made since the company was last listed, to justify the valuation.

Neither the banks nor the investors like these processes. The banks do not like to find themselves in a process which could eventually be a waste of their time and resource. And the investors dislike it because they get irritated by the constant calls from the banks at the competitive stage.

Permira is reported as saying the cancellation is just a delay rather than a total scrapping of the deal. But the imminent €756m IPO of Aer Lingus, a deal that is expected to have a much more positive result, might go a long way in dispelling any speculation that a lack of investor appetite is due to uncertainty about the economic outlook of the sector.

The book for Aer Lingus is rumoured to be over twice covered.

The question is will the failure of this IPO process lead to the death of the ‘competitive process’?

So far the future is not bright, but it will be interesting to see how Ferretti, the Italian yacht group, fares. Ferretti confirmed its intention to float last week and is being run as a competitive IPO by Permira. Research is expected to be published in mid-October, for pricing in November.

The deal could be for about €700m for a 50% free float but the primary/secondary split on the transaction is unknown. Lazard is advising, while Mediobanca is the domestic lead. Competing fiercely for the international mandate are Citigroup, Goldman Sachs, JP Morgan and Merrill Lynch.