While the BDC craze has come and gone, not everybody in private equity has given up their public aspirations. At the end of March, Ripplewood Holdings floated RHJ International on the Brussels-based Euronext Exchange. The business trades under the ticker symbol “RHJI.”
In launching RHJ, Ripplewood is contributing its interests in seven portfolio companies, including Asahi Tec Corp., Columbia Music Entertainment, Shaklee Global Group and others. The firm, according to the prospectus, also contributed approximately EURO72.5 million in cash and other assets in exchange for 40 million ordinary shares of the company. Tim Collins, a senior managing director of Ripplewood and CEO of RHJ, has said publicly that the inspiration for RHJ is Warren Buffett’s Berkshire Hathaway. The appeal, for Ripplewood, is that it allows the firm to gain liquidity on the companies in its portfolio and sets the stage for future secondary offerings, which will make raising capital much easier than the standard private equity fundraising exercise.
Perhaps most alluring, operating as a public company will allow Ripplewood to hold onto businesses as long as the firm sees fit. If growth is strong and there is plenty of upside remaining, Ripplewood will no longer be beholden to artificial investment windows. In its prospectus, RHJ cites that being a public entity would give the firm more time to improve operations, and that would make the firm a more attractive candidate to Japanese sellers, which in the past have expressed reticence over private equity’s abbreviated holding periods. Additionally, the firm cites the ability to use its shares in acquiring new businesses as another plus.
Ripplewood is not the first private equity firm to go public. BDCs American Capital Strategies and Allied Capital frequently participate in LBOs, in addition to providing mezzanine and other financing, while Onex Corp. and 3i Group have publicly held stocks in Canada and the UK, respectively. However, even as Onex and 3i are publicly held, both firms have still made the effort to raise capital from outside investors.
There has been some speculation that Ripplewood’s floatation could incite others to follow in its footsteps. There are currently 170-plus funds raising capital (see chart page, 54), and not everybody will find success in hitting their targets. But there are certainly some obstacles for firms that may be considering such a move.
One lawyer told Buyouts said that the “bureaucracy associated with being a public company” could dissuade some firms. He added that an imposing tax treatment would make a public move even less appealing, with a corporate level tax rate, long-term capital gains and qualified dividend gains all making tax season that much more draining.
For Ripplewood, though, which is active in Japan, the move comes just before the Japanese Ministry of Finance is scheduled to impose a tax increase on non-domestic private equity investors. The Brussels floatation makes sense considering the listing will give RHJ relief under the Belgium-Japan Tax Treaty.
Through the IPO, RHJ raised a total of EURO657 million, with stock being priced at EURO19.25 a share, representing the ceiling of the proposed EURO17.25 to EURO19.25 per-share range. RHJ doubled the size of the placement prior to the IPO. As of press time, shares were trading at EURO22.65 per share.
Morgan Stanley and Goldman Sachs were the joint global coordinators and bookrunning managers for the offering, while Petercam acted as advisor.
Conspicuously absent from the filing was any mention of MidOcean Partners. Ripplewood and MidOcean announced a merger last April in which the two firms would collaborate on investments and eventually raise a joint fund. As it currently stands, MidOcean is raising its second fund, MidOcean Partners II LP, and according to an SEC filing the firm has raised $305 million of its $435 million target. The filing listed nearly every partner on the MidOcean team, but there was no mention of Ripplewood. Likewise, in Ripplewood’s RHJ prospectus, MidOcean’s name was not mentioned once. Multiple calls to Ripplewood and MidOcean were not returned by press time. However, a limited partner in MidOcean’s fund said he has not heard anything that would suggest the merger had been aborted.