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Is Dis-Chem’s JSE listing pricey?

Banks will score R117 million in the company’s debut next week.

Dis-Chem will spend an estimated R149 million to raise R4.325 billion in its listing on the JSE on November 18. Nearly a third of this, R46.7 million, will be paid to Investec in its role as “Joint Global Coordinator, Joint Transaction Sponsor and Joint Bookrunner”.

Standard Bank, which will be playing the same role (presumably to a lesser extent), will be paid an estimated R26.276 million, while Goldman Sachs as “Joint Global Coordinator and Joint Bookrunner” will earn the same amount. Standard Bank is also playing the role of stabilisation manager in the process. This means it could “effect transactions with a view to supporting the market price” until the end of November. Bank of America Merrill Lynch will earn R17.517 million as “Joint Bookrunner” in the listing of the pharmacy business.

Together, the four banks will earn be paid R116.8 million, assuming the offer price is set at the midpoint of Dis-Chem’s offer price range (i.e. R18.25).

The fees (of ±R117 million) will effectively be comprised as follows: in broad terms, Dis-Chem “will pay the banks a base fee of 1.8% of the gross proceeds of the offer”. In addition, the company “may decide to pay to the banks an additional discretionary incentive fee of 0.9% of the gross proceeds of the offer”. This will be determined no later than the pricing date (November 15).

dischem-costs

An analysis of recent large listings on the exchange puts the R149 million in listing expenses in the middle of the table.

Listing Date

Company

Transaction costs

Proceeds

Cost per R1m raised

18-Nov-16

Dis-Chem

R149m

R4.3bn*

R34,451

05-Aug-16

EPE Capital Partners

R33,4m

R2bn

R16,700

24-Jul-14

Alexander Forbes

R85,3m

R330m

R258,485

02-Oct-14

Rhodes Food Group

R48,4m

R600m

R80,667

08-Jun-10

Life Healthcare

R125,7m

R5.3bn

R23,920

* Estimated proceeds

Source: Author’s research of company pre-listing statements

 

The fees incurred by Alexander Forbes in its relisting in 2014 skew the table dramatically, but this certainly wasn’t the most straight-forward of transactions. It achieved a price of R7.50, ever so slightly higher than the midpoint of the range it had been targeting. This meant the banks got paid roughly what the company had estimated in the pre-listing statement (R35.1 million for Deutsche Bank and R13.5 million for each of Morgan Stanley and RMB).

(It is evident from the above table that Rhodes Food Group spent a lot of money to raise just R600 million in its listing in 2014.)

In August, Ethos Capital – which provides investors with access to Ethos Private Equity – managed to raise about half as much as Dis-Chem intends to, at a cost that was approximately 50% more efficient (it spent R17,000 per R1 million raised, versus Dis-Chem’s ±R34,500).

PSG Konsult, which listed on the JSE after trading on an over-the-counter basis for many years, is excluded from this analysis but it is worth highlighting that it paid just R3 million in expenses related to the listing in 2014. To be fair, there was no capital raising taking place. That said, the listing of Vodacom’s Yebo Yethu BEE shares earlier this year (as an example) cost the company approximately R16 million (skewed by a R5.5 million media and advertising budget).

Secondary listings – such as AB-InBev’s and Glencore’s – do not form part of this analysis as the cost structure differs almost entirely given that there’s no capital raising taking place. And, costs of these secondary listings were not disclosed by the companies.

All of this pales in comparison, however, to the costs incurred by Mediclinic International in its reverse acquisition of Al-Noor (and listing on the London Stock Exchange) in early 2016.  It originally estimated that “the total costs and expenses payable by the company in connection with the combination and admission [to the LSE] … are estimated to amount to £25.5 million.”

After the reverse takeover, it expensed £41 million in acquisition-related costs through the income statement for the year to 31 March 2016. In its results, it discloses that the average exchange rate for the financial year was R20.73:£1. Using this figure is arguably conservative, given that most of these costs were incurred in the second half of the year, where the exchange rate was closer to R23:£1. But, at R20.73, the reverse acquisition cost Mediclinic (at least!) R850 million.

The banks and lawyers (of which there were many: Goldman Sachs International, Rothschild, Jefferies, Rand Merchant Bank, Morgan Stanley, Linklaters, Webber Wentzel, Al Tamimi & Company, Slaughter and May, Cliffe Dekker Hofmeyr) would have been smiling.

Chump change for an LSE listing, or not?

 

* Hilton Tarrant works at immedia. He can still be contacted at hilton@moneyweb.co.za

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Yes of course it’s overpriced.

Good business but fully valued, original managers becoming rich increased debt and little market support: I have no objections but seems to be the classic IPO ..nothing special for the short term

When the world is going mad, a nice cheeky comment on the banks can brighten my day…. Paid not earned

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