Common sense appears to have prevailed at Eircom, with the scrapping yesterday of its flotation plans.
When it first announced back in April that it was engaging in a strategic review that might lead to an initial public offering (IPO) – its third in 15 years – European stock markets were gorging themselves on such deals. Eircom has put together an impressive run of eight quarters of earnings stability on the back of diligent cost-cutting. But its sales are still falling by 6 per cent. No matter how cash generative a business, sinking sales don’t bode well when you want to float and need a story to sell.
Exuberant market
Perhaps the company thought it could take advantage of the exuberant market conditions and that its falling top line would be overlooked. Hey, it’s a party, right? Who cares if we’re still a tiny bit unsteady on our feet? But parties don’t last forever and the froth has been blown off the European IPO sector since the summer, following several corkers such as the flotation of Just-Eat. Investors simply stopped believing that some flotations could meet their targets.
In that environment, Eircom ran into a wall with institutional investors as its highly-paid advisers, Goldman Sachs, Rothschild and JP Morgan, quietly sounded them out regarding an IPO. It just didn’t get its deal away in time.
Another element to Eircom's expensive, but ultimately futile, strategic review was to tug the sleeves of potential trade buyers and private equity houses. The names leaked out – AT&T, the Mexican telecoms billionaire Carlos Slim – but there was never any real substance to whatever, if any, dealings Eircom had with these supposed "potential buyers".
Private equity also had no interest. Bloomberg reported that Eircom was rebuffed by CVC Capital Partners, KKR and Apax Partners. Why? No growth – the same old story.
What does all of this say about the leadership of Herb Hribar, Eircom's chief executive, and Richard Moat, its chief financial officer? They will doubtless be criticised by some for loudly leading everybody up to the top of the hill, only to lead them right back down again. But that is a slightly one-dimensional view. Should they have proceeded with an IPO in unfavourable conditions , all just to save face?
Making a U-turn
Sometimes, listening to outside perspectives and making a U-turn is the correct thing to do, even if it attracts criticism. It sounds like their shareholders were set against an IPO anyway, so perhaps they had little choice. Eircom, thanks to heavy investment, sensible management and sacrifices by staff, is on the path to future growth. Its turn on the IPO roundabout will come again.
