ISS Group, Rebel Group Choose Acquisition Over IPOs

by: Renaissance Capital IPO Research

After publicizing campaigns to launch initial public offerings, both Denmark's ISS and Australia's Rebel Group announced their intention to be acquired over the weekend. The news highlights the pressure that companies attempting to raise capital are facing due to the less than favorable, highly volatile market conditions.

Denmark's ISS Group, a facility management and support service provider with over 530,000 employees worldwide, had stated its preliminary plans to raise 13.3 billion kroner ($2.5 billion) in an initial public offering that would have valued the company at $4.6 billion, but later postponed the deal after a sell-off in global equities following the disaster in Japan.

The deal was being underwritten by Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), and had planned to list on the OMX Copenhagen. Backed by global private equity giants EQT and Goldman Sachs Capital Partners, ISS will be acquired by the world's largest security company, G4S Plc, for £5.2 billion ($8.2 billion). According to The Wall Street Journal, permitting that the deal passes regulatory and shareholder approval, the resulting entity will be the second-largest non-governmental employer in the world, second only to Wal-Mart Stores (NYSE:WMT).

Australia's Rebel Group, which includes the Rebel Sports and A-Mart All Sports chains, had previously stated its intent to go public over the past few years in an offering estimated by news sources to be worth as much as $800 million. The company, which has 128 stores across Australia and a 24 percent market share (according to Reuters), shelved the IPO last year as the retail market weakened. Australian auto products provider Super Retail Group agreed to acquire Rebel Group for A$610 million ($630 million) from Australian PE firm Archer Capital.

Foreign companies are clearly more hesitant to raise capital by publicly listing considering the performance of international IPOs in recent months. Although international companies to go public in the past three months have raised more than $8.5 billion, they have struggled since their listing dates and are down an average of 7.7% as of October 17. Furthermore, of the 13 foreign deals to list publicly since mid-July, only one, CITIC Securities, is currently trading above its offer price.

Additionally, with no private equity-backed IPOs in any global market since Collins Foods priced in Australia in mid-July, private equity firms seeking liquidity may see acquisitions as a more viable exit strategy than IPOs. The loss of two deals from the global IPO pipeline by no means signals a catastrophe for the global IPO market's outlook. However the acquisitions of ISS and Rebel Group demonstrate that gaining liquidity in the IPO market still remains challenging for many companies.

Given the uncertain state of the capital markets, some IPO-mulling companies may favor the choice of a concrete acquisition bid rather than the possibility of a poorly received IPO attempt.