Why the rich want to float

Bevan Slattery is one of Australia’s most respected technology entrepreneurs, and for good reason.

When Slattery and Stephen Baxter founded Pipe Networks in May 2002, technology companies were very much out of vogue. But Slattery, who served as Pipe’s chief executive as well as its major shareholder, won the trust of investors through a very clever strategy – his company posted a profit from year one, and every year after that.

Slattery built Pipe Networks up into a darling of the ASX, and oversaw the building of important pieces of internet industry infrastructure – such as so-called “dark fibre” cable networks around Australia and an undersea cable linking Australia with Guam.

Then in November 2009, Slattery and Baxter decided their time was up. The sold out to David Teoh’s fast-growing junior telco TPG in a $373 million deal.

Slattery’s personal stake was a touch over $50 million.

It’s an impressive sum, but not nearly as impressive as the amount Slattery has been able to make at his next venture, data centre provider NextDC.

Just weeks after leaving TPG in October 2010, Slattery took the helm at NextDC and injected $20 million into the company.

By mid-November the company had announced its intention to list, with Slattery to retain a 50% stake in the company after the float.

On NextDC’s first day on the boards on December 12, 2010, the company’s shares jumped from its $1 offer price to hit $1.47.

Since then, the stock has continued to climb and is currently trading just above $1.70, valuing Slattery’s stake at almost $70 million.

Slattery has made as much in eight weeks as he made in eight years at Pipe Networks – on paper at least.

Slattery’s big return is all about timing and reputation.

NextDC was part of a rush of more than 40 floats in December, as companies and their advisers realised that investor sentiment had picked up and institutions were keen to get access to new opportunities.

And while NextDC isn’t actually generating revenue yet (its first data centre won’t actually come online until March), Slattery’s success with Pipe was enough to attract institutions to the float.

As one institutional investor said recently, investors are keen to invest in companies where the entrepreneur has a good track record, a big stake in the business and a reputation of being very careful with other people’s money.

Floats where the proceeds are being used for growth – rather than an exit for founders or major shareholders – will get support.

There are a number of wealthy business people to have benefited from this surge in investor support for entrepreneurs, including:

• Jamie Pherous. The founder of Corporate Travel Management listed CTM in December in a float that raised just under $22 million. When the company listed, Pherous’ stake was worth $26.6 million but at current prices it’s worth $45.2 million.
• Travers Duncan. The former chairman of coal miner Felix Resources and current chair of White Energy invested $15 million into power company ERM Power when it floated in mid-December. The shares climbed 14% on debut, but have since fallen slightly and are 3% above the listing price, delivering Duncan a paper profit of around $430,000.
• Alex and Chris Winter. The brothers were the founders of energy storage company Redflow, and each had stakes of 12.8% when the company listed in December. The value of their combined stakes has jumped from $17.6 million on listing to just under $27 million.

In the last week, more rich list members have emerged as potential float candidates in 2011.

First cab off the rank is likely to be Paul Lederer’s Primo Smallgoods, Australia’s biggest producer of ham, bacon and smallgoods. Macquarie Capital has been appointed to oversee a potential float, which could value the company at around $700-800 million.

The Lederer family owns around 70% of the business, which turns over a reported $1.4 billion and generates underlying earnings of $100 million.

However, it’s not known whether the family, which started the business back in 1985, plans to sell down some of its stake. It has been reported a trade sale will also be pursued, which suggests an exit could be in the offering.

Another rich list member considering a float is Denis Wagner. His family, which owns the Toowoomba-based building materials firm Wagners, was listed on last year’s BRW rich list with a fortune of $350 million.

The company, which focuses on concrete and quarrying, has appointed Brisbane broking and advisory firm Wilson HTM to study various options, but Denis Wagner says a float in the next two years is a viable option as the business looks to position itself for future acquisitions.

He has also said family, which started the business in 1989, would remain substantial shareholders of a listed vehicle.

It seems highly likely that more rich list members will consider a float as investor sentiment continues to improve.

Pratt family members Fiona and Raphael Geminder were mentioned as potential float candidates last year with their Pact Group industrial packaging business, while Clive Palmer’s long-awaited float of Resourcehouse is also rumoured to be on the cards in 2011.

There is also a possibility that some wealthy entrepreneurs could push to float as part of succession planning – an IPO allows different family members to sell out and commit to a business as they see fit.

It seems likely most rich list related floats to be well supported as investors continue to put a premium on the skill of top entrepreneurs.