FOCUS 28
.Levels of leverage
A refi nancing in the run-up to fl otation, so as to de-leverage the business post-IPO, is yet another item to be added to management’s pre-IPO ‘to do’ list. For retailers, the store lease profi le adds another complication in providing a clear message to the market that the business will be appropriately leveraged post-IPO.
While a typical private equity-owned business is comfortable with higher levels of debt, shareholders of listed companies are more risk- averse and will expect lower leverage levels. For retailers this can translate into signifi cantly lower levels of debt (not least when the rental obligations are included in any leverage calculation), but also into an investment-grade covenant structure and documentation. It may also be necessary to modify the tax structures used in the group’s funding arrangements. Almost inevitably, there can be tension on the most appropriate post-IPO capital structure and the impact on value for the exiting shareholders.
Deals for the distinguished
The resurgence of IPO activity within retail is exciting news for current shareholders, management teams, employees and potential investors. It offers both exit liquidity and a new source of expansionary capital. It also handles management control of the next growth phase and enables share-based incentives for employees. While it will provide a different set of challenges for management and exiting owners, a public listing can be the right option for the business that can differentiate itself from the pack.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.
ALMOST INEVITABLY, THERE CAN BE TENSION ON THE MOST APPROPRIATE POST-IPO CAPITAL STRUCTURE AND THE IMPACT ON VALUE FOR THE EXITING SHAREHOLDERS.
Tim is a Director in KPMG Makinson Cowell, KPMG’s Capital Advisory business, which advises on the sources of capital across both the debt and equity markets. This advice is founded upon access to and trusted status with investors and covers a range of services including the approach to institutional equity investors, debt refi nancings, capital structure reviews for a broad spectrum of clients (from a number of FTSE 100 Corporates to smaller private businesses).
Tim Metzgen
KPMG Makinson Cowell, Director T: +44 20 7311 4291 E:
tim.metzgen@
kpmg.co.uk
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