Tegel Group Holdings' share sale has at least some passing similarities to that of Scales Corp, which went public in 2014, selling shares at the bottom of its range in an IPO that left its major shareholder with a significant stake. The question some investors are asking is: Can Tegel also over-deliver?
Scales stock has more than doubled since its 2014 initial public offering, delivering a huge gain for Kiwi private equity firm Direct Capital, which had acquired most of the company three years earlier from South Canterbury Finance for $44 million and retained a 20 per cent stake in the IPO.
NZ's biggest apple exporter more than doubled annual profit in its latest year by selling higher-margin apples in key export markets.
"Scales wasn't priced at a premium and the company has delivered," said Paul Richardson, chief investment officer at Mint Asset Management.
"The debate about Tegel is whether it is a solid company or a growth company."
Given the volatility in financial markets, "the fact that it has got to market at all is a big tick", he said.
New Zealand's biggest poultry business is being taken public by its second private-equity owner after Affinity Equity Partners acquired Tegel in a leveraged buyout from Pacific Equity Partners and ANZ Capital in early 2011. PEP had, in turn, bought Tegel from HJ Heinz in 2005.
The IPO managers Deutsche Craigs, Goldman Sachs and First NZ Capital had to drum up appetite for Tegel shares in a stock market that Bloomberg News reported this month was Asia's most expensive.
Added to that was the negative factor of Tegel's private-equity ownership in a market where the Dick Smith retail chain has suffered a very public demise after being taken public by Anchorage Capital Partners in 2013.
Dick Smith was put into receivership in January, two years after an IPO that valued it at A$520.3 million, compared with the A$115 million Anchorage reportedly paid in 2013.
Tegel's $1.55 a share price is at the bottom of the indicative $1.55-to-$2.50 range.
None of the capital raised will go directly into growing the firm. Some $132 million will be used to repay bank debt, and between $129.6 million and $163 million will pay out existing holders of Tegel's redeemable shares. The remaining $22.5 million to $25.3 million will cover IPO costs, including an $8 million bonus for senior management.
Affinity is reducing its 87 per cent stake to about 45 per cent through the offer, with at least half to be held in escrow until the firm's 2017 results.
It could sell up to 50 per cent of its holding after the first-half results, provided Tegel's shares spend 10 consecutive trading days at least 20 per cent higher than the offer price.
Chairman James Ogden said in the offer document that identifying and entering new and growing export markets was part of Tegel's growth strategy. Its projections show export sales rising to 25 per cent of total revenue over the next five years, from 18 per cent this year.
It will target the Philippines, the Middle East, Japan, Singapore, Korea and Taiwan, adding to existing markets in Australia, the United Arab Emirates, Pacific Island states and Hong Kong.
Tegel forecasts a profit of $10 million on sales of $581.1 million in the year ending April 24, rising to $44 million on revenue of $637 million the following year, when it intends to pay a dividend of between 7c and 11c per share.
• $1.55 a share price is at the bottom of the indicative $1.55-to-$2.50 range.
• $132 million to repay bank debt.
• Between $129.6 million and $163 million will pay out holders of Tegel's redeemable shares.
&bull: The remaining $22.5 million to $25.3 million will cover IPO costs, including an $8 million bonus for senior management.