Friday, 14 December 2018

EMEA Equity Issue: Foxtons’ £428.7m IPO

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Home Run

The Foxtons IPO, conducted to try and make the most out of a torrid situation, successfully transformed an ugly duckling into a swan with early investor engagement and clever positioning of the story.

BC Partners endured a hard time for the six years it owned the estate agent, having acquired it just months before the financial crisis choked off the supply of mortgages to the UK housing market. In 2009, it admitted the acquisition was a mistake and the following year lost control of the agency to its lenders, only regaining the helm early in 2012.

A year later it set about drawing a line under the company’s troubled history with an ambitious IPO.

Credit Suisse and Numis were given the mandate to achieve the owner’s primary objectives of a high free-float at a premium valuation.

To achieve that valuation the banks carefully constructed the investment story around the group’s leading position in the high-value London market, focusing on its sophisticated IT systems and robust expansion plans for 160 new branches in the south-east of England.

The case for a premium valuation was supported by solid numbers, with high margins and good cashflow making the shares an attractive yield play.

The banks understood that early investor engagement would tip the balance.

“It was important to put the proposition to investors early, to build momentum through a dialogue with potential investors,” said Nick Williams, head of European ECM at Credit Suisse. “We engaged with 27 key institutions during pilot fishing, 16 in the UK and 11 in the US, and the feedback was instrumental in setting the size of the IPO.”

The dialogue had the desired effect, and by the time the deal was formally launched, the banks had effectively derisked the deal by generating around £1.1bn of interest – 2.7 times the size of the deal.

The IPO was launched on August 27, and a price range of 190p–230p was set on September 9.

The deal was covered within the price range by the end of the first day, and from then on, it was a matter of managing the demand and guiding investors to the optimal pricing.

On September 20, the IPO was priced at 230p, implying a market capitalisation of £650m. The book was 9.5 times covered, with a large number of “at-strike” orders and an 85% conversion rate from the pilot-fished accounts.

The shares ended the first day of trading at 267p, more than 16% above the offer price.

The company raised £55m, while the sponsor reduced its stake from 74.1% prior to listing to 16.3% post-money, at a 5% P/E premium to key peer Countrywide.

In just a couple of years, the company made its way from intensive care to be stand-out EMEA IPO of the year.

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