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Bridgepoint golden hellos a challenge to private equity and investors alike



Corporate governance updates

Just what an industry under fire needed. Private equity has been taking flak amid a wave of take-private deals for UK companies. 

The charge sheet is long (and not always fair): reckless use of debt, aggressive cost cutting, outsize rewards for those on the inside and a general sense that the rules of engagement, particularly around governance, don’t always apply.

A high-profile listing of one of their own should have been a cause for celebration. Bridgepoint’s shares surged on their first day of trading this month, reflecting strong interest in alternative investments and the rarity of a private equity group joining the premium ranks of the London market.

Yet it was overshadowed by a governance bust-up that played into the worst stereotypes: sorry but the rules don’t apply to us. 

First, Bridgepoint’s executive chair William Jackson is staying in that role, something common among US-listed alternative investment groups but in contravention of City best practice. Second, the big name recruited as senior independent director, chair of Marks and Spencer Archie Norman, received a highly unusual signing-on bonus, or “golden hello”, of £1.75m, on top of his annual fee of £200,000.

Amid angst that onerous corporate governance rules are pushing listed companies into private hands, it is sporting of Bridgepoint to attempt to narrow the gap. In reality, it underlines the need to extend some of the more stringent regulations and disclosure requirements for listed companies to their private peers — a key plank of the government’s audit reform proposals. 

Sure, the company wanted a high calibre board; three other independent directors received payments of £500,000 too. The sums were, after tax, invested in the company’s stock (which would have provided considerably better alignment with other shareholders if it had involved directors’ own money).

But the payments set a bad precedent and risk the board’s credibility, especially around overseeing pay. The UK Corporate Governance Code, which applies to premium-listed companies, is clear: independence is threatened where a director “has received or receives additional remuneration from the company apart from a director’s fee”. The fact Bridgepoint labelled the payments “initial fees” is perhaps no coincidence but is an explanation surely too cute to run with.

And therein lies the problem. Under the “comply or explain” system, designed to give companies flexibility, shareholders can look forward to a discussion of this in the annual report, long after the point where it was a done deal.

Everyone knows those explanations tend to be pointless boilerplate, something regulator the Financial Reporting Council addressed earlier this year. Giving the FRC more powers to call out code breaches and insipid explanations is another welcome suggestion in the government’s reforms.

There has been much gnashing of teeth from institutional investors this year over the risk to London’s reputation from a mooted overhaul of listing rules, which propose watering down free float requirements and allowing dual-class listing structures in the top tier of the market. There was vocal opposition to Deliveroo’s listing, which eschewed premium status in favour of lower governance expectations.

But the job of enforcing the corporate governance code specifically falls to institutional shareholders, as part of the diligence and oversight exercised in investing clients’ money. Which makes you wonder whether the stewardship teams at asset managers had seen Bridgepoint’s pre-IPO pathfinder prospectus disclosing the payments before their colleagues in effect gave them the nod by buying shares in the listing. 

Perhaps they didn’t make it to the relevant bit, page 261 of the 300-page document. There were, I’m told, no questions on the issue in investor meetings as part of the listing process.

The FRC is preparing to announce which of about 200 applicants will be the first signatories to the new Stewardship Code for investors, an effort to set higher expectations around these issues and, presumably, a desirable badge for any money manager professing to be ESG-minded (all of them).

When it comes to explanation, large investors should now be asked not only how they’re addressing issues after the fact but why, on balance, they decided to invest in the first place.

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Abu Dhabi’s Adnoc plans 7.5% stake float of oil drilling unit




Abu Dhabi National Oil Co updates

The Abu Dhabi National Oil Company plans to list a 7.5 per cent stake in its drilling unit via an initial public offering on the Gulf emirate’s stock exchange next month.

Adnoc Drilling is 95 per cent owned by Adnoc, which has in recent years embarked on a modernisation drive including diversifying its investor base and unlocking cash from its infrastructure base.

In 2018, when Baker Hughes acquired a 5 per cent stake in the business, Adnoc Drilling had an equity value of $10bn.

“Adnoc Drilling’s planned value creation opportunities, including a major rig fleet expansion and well drilling program, ideally position the company to take full advantage of emerging opportunities,” said Sultan Al Jaber, Adnoc’s chief executive.

The offering, which is open to domestic and international investors, is expected to take place in October on the Abu Dhabi Securities Exchange (ADX) subject to market conditions and regulatory approvals. The size of the offering could be increased.

The United Arab Emirates, which is already the third-largest producer in Opec, is committed to raising its output capacity from 4m barrels a day to 5m barrels a day.

The Gulf state earlier this year clashed with its larger neighbour, Opec kingpin Saudi Arabia, by refusing to endorse a planned Opec+ production increase. Abu Dhabi argued that its “baseline”, the level from which Opec quotas are calculated, should be increased. A compromise deal was clinched in July that raised the UAE’s baseline quota from 3.2m barrels a day to 3.5m barrels a day.

Adnoc Drilling, the largest drilling company in the Middle East by fleet size, is the sole provider of drilling services to Adnoc. In 2020, Adnoc Drilling’s revenues were $2.1bn, with a profit of $569m.

The deal would be the second IPO launched by Adnoc since the 2017 listing of its distribution arm, the largest operator of petrol stations and convenience stores in the UAE.

The national oil company has separately opened its refineries and oil and gas pipelines businesses to international investors. It is also seeking to sell stakes in its power plants and other infrastructure.

Adnoc earlier this year started trading futures of its flagship crude oil, Murban, on ICE Futures Abu Dhabi, a commodities exchange based in the capital’s financial district.

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Chemicals distributor Azelis seeks to raise €880m in Brussels IPO




IPOs updates

Speciality chemicals distributor Azelis is seeking to raise €880m in an initial public offering in Brussels in what will be one of the sector’s largest listings this year.

The Antwerp-based company, which is owned by Swedish buyout firm EQT, is targeting a valuation of more than €5bn, according to people familiar with the matter.

The IPO would make Azelis the world’s fourth-largest listed chemicals distributor in a highly fragmented €117bn market. As well as using the IPO’s proceeds to cut some of its €1.6bn of debt, the company also plans to make further acquisitions.

“As a public company, we believe we will be able to fully capitalise on growth opportunities, continuing to complement our strong organic growth with accretive acquisitions,” said chief executive Hans Joachim Müller.

Müller said he hoped to expand operations in Asia and gain a foothold in Latin America, where Azelis does not have a presence.

Founded in 2001 from the merger of French and Italian distributors, Azelis’s business extends beyond distribution. It also has a network of laboratories that test products and add new ingredients to existing products for clients.

The company expects tougher regulations in markets from animal nutrition to cosmetics to push more chemical producers to outsource distribution and formulation services to larger external providers.

Azelis laboratory
In addition to distribution, Azelis also has laboratories that test products and add new ingredients to existing products for clients © Ben Connell

Azelis generated revenues of €2.2bn last year, while its operating profit climbed 10 per cent from 2019. It employs 2,800 people across 56 countries.

Demand for chemicals has rebounded rapidly from the pandemic’s initial hit, sending valuations for the sector soaring and handing EQT a chance to capitalise.

Nouryon, the former chemicals arm of Akzo Nobel that was acquired by US buyout firm Carlyle in 2018 in a €10bn deal, is also set to go public.

Although Azelis has only a 2 per cent market share, it is enough to make it one of the sector’s largest players alongside Germany’s Brenntag, IMCD from the Netherlands and Illinois-based Univar Solutions. In a sign of investor appetite for the sector, Brenntag’s share price is at an all-time high.

Müller said that because the company’s global service centre was in Belgium, Brussels was the best place to list. It would be the largest IPO on the Brussels Stock Exchange since 2007.

EQT will retain a stake in the company following the IPO, which Azelis had considered before the Swedish private equity firm led a buyout of the business in 2018.

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Petershill/Goldman Sachs: private capital seeks paradoxical public market boost




Goldman Sachs Group updates

Groucho Marx was suspicious of any “exclusive” club whose standards were so low he could join it. The UK’s dyspeptic long funds may have similar reservations about Petershill Partners. This offshoot of Goldman Sachs buys stakes in private equity groups and hedge fund managers. The investment bank plans to float Petershill, which may be worth about $5bn, in London. Anyone with a broking account will be able to buy shares previously only available to select Goldman clients.

The Wall Street bank will remain a gatekeeper in another respect by investing the capital of Petershill Partners in return for fees. These look generous, even though a minimum 7.5 per cent annual charge would be levied on income from investee companies, rather than on fund value.

Goldman, which is diversifying into asset management, will have earned its money if it uses its powerful network to make lucrative investments.

If you think that will happen, Petershill will be a worthwhile investment itself. If not, shrug and pass on. A stock market is a place to test business propositions. It is not a corporate Hall of Fame, though that is how London sometimes self-defeatingly seems to see itself.

Petershill invests in asset managers rather than their products. This spares end investors two tiers of management fees. Typically, it purchases minority stakes in private capital managers when they issue equity to finance expansion.

Private capital is hot at the moment. You might therefore ask why Petershill is seeking a mooted $750m from unfashionable public investors rather than that source.

The reason is that alternative asset managers from Apollo to Pershing Square prize permanent capital, which they can deploy for the long term. The stock market is a good supplier. You might also see adroit timing in Petershill’s plan to float when private capital management is, in the words of one buyout boss: “The hottest of hot spaces at the peakiest of market peaks”.

However, the mooted price of about $5bn would equate to only around 22 times estimated net income in the 12 months to June. That is a lot lower than US peer Blue Owl and quoted UK buyout group Bridgepoint, which are trading at more than 30 times forward earnings.

Routinely presented as polarities, private and public market capital remain inextricably entwined, as this deal would prove.

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