Glenveagh investors warned of potential risks
Homebuilder’s flotation comes with caveats – and eye-watering executive incentives
Alan Walsh, CEO of One51
Glenveagh is the second Irish homebuilder to float in two years as equity remains king in the post-crash world. Photograph: Gareth Fuller/PA Wire
Ballet aficionado and chief executive of stock exchange-bound homebuilder Glenveagh Properties Justin Bickle has padded the company’s almost 400-page flotation prospectus with obligatory warnings on all kinds of risks and potential, ahem, black swan events.
Brexit, threats to the State’s help-to-buy scheme, potential zoning and planning issues and risks of tax changes all get a mention. But page 75 of the document, seen by The Irish Times this week, appeared, at first glance, to be calling a peak in house prices in 2019, when its average selling price would reach between €340,000 and €410,000 before falling back to €315,000-€390,000 in 2020.
On closer inspection, it appears that the 2019 projections are being skewed by some high-end homes it is planning to build at Holsteiner Park in Clonee, Co Meath, where selling prices are expected to be as high as €895,000. This end of the market is a bit of a deviation from its main target: first-time buyers, who are expected to account for half its purchases as home sales climb from an estimated 250 next year to 1,750 in 2022.
Glenveagh is the second Irish homebuilder to float in two years as equity remains king in the post-crash world, where banks insist they will never again go back to the days of heavily-indebted plans. Indeed, it’s surprising that there haven’t been more.
In this instance, the company is being created by US private equity giant Oaktree Capital, where Bickle is an executive, combining €131.2 million of development land it hoovered up in Ireland following the crash with the assets of Maynooth-based builder Bridgedale.
Bickle is set to leave Oaktree at the end of October but will remain as chairman of the main Irish vehicle the US firm has used to hold Irish property.
The IPO prospectus for the flotation – dubbed Project Villa – is forced to point out that Glenveagh is receiving “limited warranties” regarding the 27 sites it is acquiring from a vehicle associated with Oaktree, TIO RLF, as well as the Bridgedale assets.
“In each case, there may be terms in the relevant agreements that are less favourable to the group than might otherwise have been the case in transactions with unrelated parties,” it says. “Existing or future conflicts of interest or the appearance of conflicts of interest could have a material adverse impact on the group’s reputation.”
That, in a nutshell, is the main problem that potential investors need to get their heads around when buying into vehicles like this being set up for flotation.
Another is the massive executive incentive plans that have been de rigueur among the plethora of property-related plays that have floated on the Irish Stock Exchange in recent years.
In this case, Bickle, Glenveagh’s executive chairman John Mulcahy, who is a former senior Nama official, and its chief operating officer Stephen Garvey have been given so-called founder shares (convertible into ordinary stock) that effectively entitle them to 20 per cent of total shareholder return over five years, subject to certain conditions, as well as discretionary bonuses of up to 100 per cent of their basic salaries.
The least investors can hope is that the eye-watering, share-based executive reward schemes have incentivised management enough (beyond their normal fiduciary duties) to make sure that “limited warranties” will not come back to bite them.
One51 IPO plans bring CapVest out of the shadows
As One51 courts its 2,000 shareholders in Ireland to seek their support for its plans to get its house in order ahead of its long-awaited flotation in the next 12 to 18 months, a familiar figure has emerged from the shadows.
The plastics company confirmed on Friday that UK private equity firm CapVest has made another approach to take out the business – a little over two years after its first attempt was thwarted by the then-growing presence of billionaire Dermot Desmond on the shareholder register.
Desmond is no longer around, having sold his 25 per cent holding earlier this year to Canada’s Caisse de Dépôt et Placement du Québec (CDPQ).
Meanwhile, One51 – where chief executive Alan Walsh has spent the past seven years unravelling the firm’s collection of disparate investments to focus on plastics – is in talks to buy out CDPQ and another Canadian firm’s combined 33 per cent stake in IPL.
IPL, which makes everything from yoghurt pots to refuse bins, makes up 80 per cent of One51’s revenues and Walsh is looking to get the Canadians to swap their stakes for a direct holding in the parent group.
Presentations doing the rounds during the week on the proposed deal point to an equity value of about €500 million for One51 – assuming the share “swap-up” takes place.
Using some of the figures from the One51 presentation, CapVest’s €2.50-a-share indicative offer for One51’s existing stock essentially values the company (and the Canadian’s IPL stake) at about €525 million.
The question now is whether shareholders decide to grab a formal offer from CapVest, if it actually materialises, or take their chances on an IPO. Given the number of false dawns they have witnessed on the IPO front over the past decade, they may be tempted to go for the former.