Cantillon: Pulled IPO cannot be good for Denis O’Brien

There is no such thing as a “good” pulled IPO.

In the statement announcing its decision not to proceed with its plan to float this week on the New York Stock Exchange after markets closed on Tuesday, Denis O'Brien's Digicel said an IPO for the group had been "optional" and "predicated on achieving fair value for the company".

There are two broad reasons for going down the IPO route – raising funds or facilitating an exit for existing shareholders.

The latter can spread the risk of ownership, and facilitate founders looking to cash in on all or part of the business or venture capital/private equity partners looking to crystallise the return on their investment.

The former provides funds for expansion or to pay down debt.

O’Brien was not looking to exit the group: the share structure guaranteeing him effective full control of the telco despite asking investors to pay for almost 40 per cent of its equity confirms that, and there is no private equity partner to satisfy.

In the IPO prospectus, Digicel makes clear it intended to use $1.3 billion of expected proceeds to pay down some debt at the highly leveraged business with about $400 million going to invest in transforming the group into a more rounded digital media player.

Saying it was optional infers there was an alternative way to manage these two ambitions. From the outset, the timing of the flotation was problematic. Markets have not turned volatile simply in recent days: they have been unsettled since before Digicel filed notice of its intention to float.

As Bill Gurley, a partner with Benchmark puts it, there are companies that want to IPO and those that need to for capital reasons. He notes some of the need to category will always fail to find supporters.

“If you are going to file the S-1 [statement of intent to IPO] , it is imperative that you are prepared to follow through. Standing too long in the middle of the financial equivalent of the river Styx can have severe consequences,” Gurley has written. “If you then ‘pull’ your IPO, you now risk being considered a ‘broken’ deal and potentially a ‘broken’ company.”