After Gartmore's float struggles, future new issues could be priced to go.
The name of Gartmore (LSE: GRT) will be familiar to anyone who regularly reads the weekend financial press. One of Britain's biggest fund managers, with £21.8 billion of assets under management, privately-held Gartmore offered shares in itself via an institutional placing last week.
On Monday, those shares traded for the first time -- changing hands at 213 pence as I write these words. Which will underwhelm not only those who bought into Gartmore at the placing price of 220 pence on Friday, but any number of owners of other businesses hoping to go public any time soon.
Hopes had been initially high that Gartmore shares could be placed in a range between 250 pence to 300 pence. On Friday, the company conceded defeat and accepted 220 pence in order to get the flotation away -- in the process raising far less capital than initially hoped-for.
Debt relief
Following a management buy out in 2006, Gartmore was owned by San Francisco-based equity group Hellman & Friedman and the fund manager's own senior management. Management have run a tighter ship since the buyout, trimming staff numbers, simplifying the range of funds offered, and reducing back office costs.
But debt levels were high -- £400 million or so -- and the intention of the float was to pay a chunk of this off. Ideally, it seems, Gartmore management hoped to pay off at least £250 million.
In addition, the idea was to take advantage of the weakened state of the financial markets to make a few choice acquisitions, usefully broadening Gartmore's capabilities. This would be no bad thing: traditionally, Gartmore has relied on equities and a handful of key managers, leaving it relatively short of fixed income and absolute return offerings.
Limited attraction
That was the plan, anyway. In practice -- and for the second time, since an earlier flotation in 2007 had to be abandoned due to the credit crunch -- events got in the way.
The markets were spooked by Dubai, for one thing. And big institutions -- not to mention private investors -- had had to cough-up for the Lloyds Banking Group (LSE: LLOY) rights issue less than 48 hours previously, too.
Nor were investors as attracted to the placing as Gartmore and its majority owners might have hoped. Gartmore is no iShares, the fund arm recently sold-off by Barclays (LSE: BARC), and the price range clearly found many prospective investors shaking their heads rather than reaching for their cheque books.
At which point bad luck intervened. Many private investors will have hoped to participate through fund supermarket Hargreaves Lansdown (LSE: HL), which had promoted the placing to its clients.
The last-minute change of price, and the issue of a supplementary prospectus, meant that Hargreaves Lansdown chose not to apply for any shares at all, for fear of leaving at a disadvantage clients who had been happy to buy in at a higher price on the original prospectus.
Bargains ahead?
I don't imagine those clients will be disappointed today, with the market delivering an opportunity to buy-in even more cheaply. If you fancied a punt on Gartmore, the business has been 'on sale' all day.
But Gartmore majority owners Hellman & Friedman will be disappointed, having failed to raise the amount that they had hoped for -- and having failed to get anywhere near the price that they had been expecting.
Also disappointed will be other businesses hoping to float in the months ahead. While small-scale capital-raising is still happening on AIM, the Gartmore experience shows that the appetite for larger-scale main market flotations remains poor.
Things are getting better, undeniably. The economy is recovering, and the dark days of February and March seem distant indeed. But the bottom line is that investors are still nervous.
Is there any good news? Well, yes. After the Gartmore débacle, the next flotations -- of whatever form -- will be priced to go. Leaving investors getting not only Gartmore at a bargain price, but its successors in the flotation process too.
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Malcolm owns shares in Lloyds Banking Group.
