Lego clan beats Goldman in $1.5 bln ISS float

March 14, 2014

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Lego has trumped Goldman Sachs in the $1.5 billion flotation of cleaning giant ISS. The Danish toymaker’s owners, the Kirk Kristiansen family, made a minority investment in the group in 2012 to help cut its debt. ISS’s successful stock-market debut has brought a sparkling return for the Lego latecomers, leaving owners EQT and Goldman in the dust.

The March 13 initial public offering of ISS went well. Its stock priced at 160 Danish crowns and closed up 14 percent at 182.7 crowns. EQT, the buyout firm backed by Sweden’s powerful Wallenbergs, and Goldman’s private equity gurus, sold 1 million shares at the float price, and may offload 7.7 million in the coming weeks. They retain another 89.5 million shares. So their holdings, plus the 160 million crowns already raised, are now worth 17.9 billion crowns.

That gives a 2.3 times gross return on the 7.7 billion crowns of equity that EQT and Goldman invested in ISS’s leveraged buyout in 2005. Neither firm made any further investments into the business, nor did they take dividends out. That means the investment to date has delivered a less-than-stellar 10 percent gross annual rate of return.

For the investment clients of EQT and Goldman, the return would be even lower due to fees. In typical private equity funds, these can run to 1.75 percent in annual management charges and 20 percent of investment gains. The shares of ISS’s listed rivals would have been a simpler and more lucrative bet. Investors who bought Sodexo or Compass stock in May 2005 and reinvested dividends have roughly quadrupled or quintupled their money, respectively, Datastream shows.

For EQT and Goldman, this deal was marred by high debts, and numerous failed attempts at sales or flotations. Contrast that with the rapid profit for the Lego billionaires’ KIRKBI vehicle, and their partners in the 2012 equity injection, the Ontario Teachers’ Pension Plan. The duo’s 3.7 billion crown investment has turned into stakes worth 6.4 billion crowns: a 41 percent internal rate of return.

Investing in private companies not long before they go public can backfire. Ask Norway’s oil fund, which is ruing a move into Formula One. But here it allowed OTPP and KIRKBI to clean up handsomely.

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