Distressed IPOs

0:05Pushkin. So deals, think big mergers, think companies listing on stock markets. This is the sexy stuff, right, of investment banking. And they're back, sort of. We saw some mega deals come through in the first quarter, but it hasn't been plain sailing since. We've seen some big deals ball over horribly. Much embarrassment all round. So today on the show, we're going to be asking, is it for real this time? Plus, who killed the golden goose? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at the FT in London, and I'm joined by the man at the FT who we affectionately call JFK, James Fontanella-Chan.

0:52James, you love your deals. I do, at least when they're there. So, welcome back to the show, although you've been on before. But tell me, before we get into the meat of this, what is the favourite deal you've ever written about? I haven't thought about that. I wouldn't say my favorite, but the most significant one was the one when DFT got acquired by Nikkei. Yes. There's nothing quite like reporting about your own company getting acquired. You kind of suddenly understand how meaningful it is to the people who are kind of living it. And whenever I report about an M &A deal now, I kind of think about, oh, what are the people working there going to think about it?

1:34What are those humans who work there? Yeah, no, it's a very good point. It humanised it for real. That was a very strange time. Yeah, yeah. Okay, so that was ages ago. That was 2015. So let's talk about what's going on now. Golden Goose, enlighten me. They make rubbish looking trainers that cost lots of money, yes? Absolutely. Bankers love them. They must be terrible. Yeah, that midlife crisis kind of acquisition. Right. So they retail for about, what, 500 euros? Yeah, 500 euros. 100 dollars a pop, these trainers. And they look like they've already been worn for months. Exactly. You can't be bothered to kind of actually wear them and get them to that stage.

2:14So you kind of, they do it for you. I've got a house full of rubbish looking trainers if anyone would like them. Could be the next millionaire. I could be. But don't IPO. So, no, do not do an initial public offering. Do not list on the stock market. Because the whole point was it's owned by one of these big fancy private equity companies, right? And the big fancy private equity company was about to list it in Milan. and then at the very, very last minute said, no dice, not going ahead. What's going on there, JFK? A number of factors. If you step back, the luxury market for shoes and clothing in general hasn't been doing great.

2:49Take Montclair, another Italian company, hasn't been doing very well. The biggest issue, I was actually in Milan recently and I was talking to some of my friends who operate in that sector is like one of the key markets has somewhat disappeared, and that's China. So sales from China have gone down significantly. And so investors are not that excited about luxury companies at the moment, especially in the clothing sector. And yeah, so Primera, you mentioned the private equity company that owns Golden Goose, had already one bad experience with Dr. Martins, the kind of fashionable UK brand. They listed, I think, in 2021, and it did not go well.

3:35And so they wanted to avoid... The market does not like Doc Martens. Yeah, that's a pity. There's a dissonance between the market and the people who actually wear the stuff. Yeah, I love my DMs. And it's like strong mum energy, whereas Golden Goose are strong Taylor Swift energy. She has been seen, St. Taylor of Swift has been spotted wearing these shoes. So the kind of assumption was this thing is going to go fine. So what went wrong with the deal? Like you say, Pemira didn't want to have another kind of bad look on its hands. But it sounds like the negotiations around this, like the plug was pulled super last minute, right?

4:12It was all kind of high drama. Absolutely. So I think there were some early signs this whole IPO was probably not going to be great. Their marketing gimmicks were kind of off the charts. They kind of kept on promoting this as like there's a scarcity of happiness. And then the slogan like the uniqueness, which. They were talking about like uniqueness, right? Putting the you into unique. Yeah. See, that's kind of. Yeah. And maybe somebody got paid a ton of money for this kind of frankly crappy. I'm just putting out that maybe an investor somewhere thought that possibly that was a bit lame. Yeah.

4:49And it's like, if you guys are spending money on kind of weird portmanteaus, it's like, problem. The valuation went down from$3 billion to$2.2 billion right away. It was going to go south from there. Anyway, I feel bad for these guys, but not really. $500 for shabby shoes. Shabby shoes with uniqueness, though. That's true. Very, very, very unique. And then the other key factor. So they had Invesco was kind of the anchor investor. Yeah, a big, serious investor was like, fine, we'll be a cornerstone in this. We'll take a whole bunch of the shares. And generally, if you've got a big, powerful, well-respected cornerstone investor, then the rest of it sorts itself out.

5:29But not so much. No, I mean, BlackRock was not interested and a ton of other kind of larger investors decided to kind of stay out of it. And I think that's what kind of concerned Premier the most. If you can't attract big institutional investors, the likelihood that this is going to flop is very high. And the other thing is like the IPO market in Europe, we've seen signs of a revival. But again, and this is kind of similar to the general story about M &A and dealmaking more broadly, a lot of the IPOs have not performed greatly. And so, you know, there's other options. And that is just wait. And at times that's kind of the wisest thing to do.

6:13And I think you've got to give credit to Premier. Obviously, it's incredibly embarrassing to pull the plug. But in the grand scheme of things, it was probably the right decision. Yeah, they're struggling to drum up interest. So this is all very disappointing and, as you say, embarrassing for the people that are involved. But how does it fit into the broader landscape for deals, not just in Europe, but elsewhere? because, you know, this isn't the only big transaction that's gone belly up at the last minute. There was the whole drama around BHP's effort to buy Anglo-America, the big kind of, you know, was going to be a big mining transaction on the London market.

6:55And that went all pear-shaped too. What went wrong with that one? And is there something wrong with mega deals generally? So I think maybe we step back a second. And like 2023 was a terrible year for deal making. There's some kind of pent up demand amongst CEOs and kind of deal strategists to get deals done. The problem is that it's not always easy to align the buyer and the seller. And in a case, and a lot of the deals that people want to do are genuinely very complicated. And the broader geopolitical environment, the monetary environment, interest rates are very high, is not really conducive to deals getting done.

7:38And so in the case of BHP and Anglo, this was not a straightforward deal. There were obviously kind of big antitrust concerns. Then the way that BHP wanted to do this was kind of a three-way deal by kind of spitting off certain businesses and combining them with other businesses that they owned. And so it was kind of easy for Anglo to kind of say, actually, we prefer to go it alone. And generally, hostile deals, which is the case of what the BHP bid was, are tough to pull off. Yeah, so Anglo said, no, thanks very much. So BHP said, fine, we're going to ask your shareholders to see if they want to do it.

8:16And that is quite unusual, isn't it, that things go hostile like that? And I have to say, there were some shareholders who came out publicly in favor of it, but it wasn't overwhelming. Again, the complexity of dealing with trade unions, dealing with the government in South Africa, there was an election there, so it became a hot topic. There were a lot of constituencies, a lot of kind of stakeholders, as dealmakers like to call them, who were opposed to the deal. And ultimately, they ran out of time. Because in the UK, when you say you want to do a deal, you have to kind of actually propose a formal bid that never really arrived.

8:52It was always a non-binding one. And so it went sideways. That said, there have been plenty more deals in the UK in particular. And there have been a lot more so-called mega deals. this year yeah i mean i remember we had a story just the other week about you know hedge funds that are betting against mid-size uk companies are basically idiots because mid-size uk companies with like crappy valuations because people don't generally like the uk market very much they're just getting snapped up by private equity buyers or by other similar companies at like a tremendous rate at the moment so it's a really foolish game to be betting against those stocks I mean, let's get into politics a little bit as a little bit of a tangent.

9:38But, you know, we've obviously got an election coming up in the UK. Do politics generally put off deals or do they encourage people to get these things done before you get changes of administration or of government? I think it really depends on who people think is going to come into government. The general rule for deal making is people want certainty. So, most of the time, it doesn't really matter how high or low interest rates are. As long as we know that they're going to be stable for a while, we can then model it in the terms of the deal. In the case of the UK, I think everybody who's looking at the elections is expecting Labour to come back into power.

10:17And the general view is that the Labour government will not be very anti-business or anti-dealmaking. you can see also like you know they've made a proposal on carried interest for example which seemed very aggressive at the beginning but at the end of the day it's not really going to impact private equity yeah so this is a way of taxing private equity companies right and there has been a concern that they're going to get taxed within an inch of their lives but as in like everybody else but sorry yeah but whether a new labor government would really go through with the harshest possible interpretation of those rules is is up for debate it's still to play for right yeah and and private equity executives have now come out actually expressing kind of not so like they were quite positive about the changes in the proposal and and so the point is i think in the case of the uk people are quite relaxed about uh the labor government they don't think it will be necessarily like anti-deal making.

11:21But the reason you mentioned this, the reason there's so many deals at the moment in the UK, I think compared to a year ago, it's up 75 % or so. So it's like significant. And that's because you have a fairly cheap pound compared to dollar. So you've got a lot of US private equity firms, as well as actual kind of strategic saying, there's still some great companies, we can buy them on the cheap. It's our kind of a way to kind of expand our international footprint. One of the deals that comes to mind is kind of the international paper, US kind of paper and packaging company bought the S. Smith for like seven plus billion pounds.

11:56The Czech billionaire Kaczynski bought Royal Mail for over five billion pounds. And there's plenty more. And again, private equity, which has been somewhat on the sidelines, especially in 2023, because rates were so, interest rates were so high, they've made a come back and they've been snapping up assets all over the place. Now, in my experience of talking to people in private equity or talking to the bankers that list companies on stock markets for a living, they always say the same thing, which is, okay, the market might be crappy at the moment, but there's a pipeline. There's always a pipeline with these people.

12:32It's a never-ending pipeline. There's always a whole bunch of deals that are just around the corner. you wait and see they're all going to hit the market anytime now what's your bet do you think there really is a rush of deals to come maybe next year once we've got the u.s election out of the way you know is there really a meaningful pipeline of mega deals you think that's going to hit so let's put it this way one of the key reasons why mna has not bounced back is antitrust and the fact that like both particularly in the u.s but you know also in europe and the uk surprisingly because one of the things everybody thought post-Brexit was that the UK's kind of antitrust regulator would have probably eased rules to allow more deals.

13:17Instead, they've been as kind of activist as the American and European regulators. And so I recently had a chat with an important regulator in the US. He or she will go unnamed. But in case Trump wins, which is a possibility, I asked whether he or she expected that there would be a big change in dealmaking and that, like, essentially, would Trump make it easier for companies to buy other companies? And the answer was, well, it's not clear because there's a populist wing of the Republican Party, which actually doesn't like the idea that, like, big companies go around kind of buying smaller companies.

13:59They believe in the idea of kind of making sure smaller companies are allowed to grow and that there is greater competition. So there's an alignment, actually, between the more progressive side of the Democratic Party and the more populist part of the Republican Party on that matter. So it could be that antitrust might remain a sticking point. On the other hand, it could be that we go back to the Chicago school, let deals happen, try to increase shareholder value in whatever way you can. But it's not a done deal that if Trump comes to power, we're going to have a gazillion deals. It could be that Trump might help deals in certain sectors, but might be less favorable about allowing deals in the media industry because he hates the media industry.

14:54Brutal but true. So we might be staring down that empty, empty pipeline for a little while. Or maybe it's a full pipeline going nowhere. Yeah, it's got lots of bends in it. We're taking this metaphor too far. JFK, we're going to be back in a sec with Long Short.

15:18right then jfk it is time for long short that part of the show where you can go along a thing you love short a thing you hate it can be anything within reason doesn't have to be market see but what do you got i'm gonna stick with football or soccer for our US audience. And given that we have the Euro Cup, so I'm Italian, so I'm not going to pick Italy just because it's like bad luck. And I'm hoping to jinx somebody by going long on Germany. Ooh, the hosts. Yeah. We'd like to remind everybody that in 2006, we won the World Cup in Germany with a great semifinal against Germany, one of the greatest days in my life.

15:59Maybe by the time we didn't actually win the Cup, but anyway, Long on Germany. They have a pretty good team, but deep inside of the hell, they lose. So you're long Germany because you want them to lose? Yes. Cool. Makes sense. So I am going to be unironically and unambiguously long Sterling. But mostly against the euro. So there's been a decent move higher in Sterling against the euro since Macron did whatever it is that Macron has done in calling these elections in France. markets do not like the euro at the moment and suddenly sterling's on the brink of getting a new government probably they seem to be sensible people the market quite likes them so i don't know whether it's kind of the market is saying okay sterling is the cleanest dirty shirt or whether it's saying we actively like this currency and we like the growth story in the uk and we like that uk politics are good and european politics are bad but either way um if the european situation gets worse, then Sterling could be in for a really good run.

17:03Who'd have thunk it? Clean dirty shirt sounds a bit like Golden Goose, but... Yes, the cleanest goose in the room or something like that. James, it's been an absolute pleasure. Thank you so much for coming on to the show. Listeners, we'll be back in your feed on Tuesday, so tune in then.

17:24Unhedged is produced by Jake Harper and edited by Brian Erstad. Our executive producer is Jacob Goldstein. We had additional help from Topher Forges. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.

18:00We'll be right back.