It’s the Attitude of the Latitude that caused the problem
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk. This week he turns his attention IPO valuations.
Well this week saw Australia witness its own WeWork IPO type meltdown, with the Private Equity (PE) backed Afterpay wannabe — Latitude Financial — coming to a grinding halt on the last bend on the ASX racetrack to IPO Nirvana.
The weirdly-named Latitude used to be known as GE Capital before it was sold by The General Electric Company (GE) to a group of PE players in Australia in 2015. The deal at the time was one of Australia’s largest ever PE deals, with an ‘enterprise valuation’ of A$8.2bn.
After buying out GE, the PE consortium got in and did their usual stuff and in 2018 it was trotted out for its first attempt at an IPO, on a $5bn valuation. It was pulled because of valuation issues.
In May 2019 they brought in Australia’s ex highest-paid postman Ahmed Fahour as the new CEO, pulled off the dust sheets and came back to the market with version 2.0 on a valuation of A$3.2bn. If the IPO was successful, Fahour was also on track to pull in a listing bonus of A$22m.
This time, to help get the IPO away, the CEO had a $22m GE halogen lightbulb moment of genius. Fahour decided that this time around, they would need to add some more sparkle and become more market-fashionable. So they became a Buy Now, Pay Later AfterPay-type player.
To get this idea happening, Latitude started by offering Harvey Norman’s customers $1000 on 10 weekly interest free instalments. And as Gerry had been using them for years as his 60 months interest-free provider, this seemed a natural extension (maybe not to the millennials, though).
However, the market has become very weary of PE firms offering their IPO gifts, especially after the Dick Smith IPO debacle — which funds management firm Forager called “The Greatest Private Equity Heist of All Time”.
So, every fund manager was already wearing their caveat emptor (buyer beware) hat to the Latitude IPO presentations. Then, if you really want to poke the bear, the new CEO’s $22m bonus was coming out of their IPO application funds — and not from the PE firms’ own coffers.
As the meetings went on and the push-backs became louder, they pulled out all stops and even tried the old ‘WeWork trick’ of ignoring the Golden Rules of broking — coming back to wary investors with an even lower IPO valuation.
Dropping the issue price from a starting range of $2.25, $2.00 to $1.78 smacked too much of desperation and so, yet again, it was embarrassingly cancelled.
I always think that those close to a large IPO, like WeWork or Latitude become too close to it all. Filing mountains of legal paperwork and the physical writing of the prospectus means that in one sense, the IPO creates a life of its own that you don’t want to see die at birth.
The market may be harsh but if the baby is just too fugly, all a mother can do is slap the father and move on to find a better quality gene pool for the next birth.
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The Secret Broker can be found on Twitter here @SecretBrokerAU. Feel free to contact him with your best stock tips and ideas.