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IPO or No? Two Firms Show Stark Choice

While Tommy Hilfiger drops out amid scary markets, RiskMetrics seems ready to go due to the peculiar attraction of its business line.
Stephen Taub, CFO.com | US
January 24, 2008

The mixed signals being sent about the initial public offering market seem especially evident in the divergent cases of IPO wannabes Tommy Hilfiger Corp. and RiskMetrics Group Inc.

Today, it was reported that Apax Partners Worldwide LLP is delaying the IPO for Hilfiger, the fashion brand that moved its headquarters to New York from Amsterdam after its 2006 leveraged buyout. The reason for the pull-back, not surprisingly, was volatility in the global stock markets, according to Bloomberg News.

Hilfiger had hoped to go public with a minimum valuation of $2.5 billion, including debt, according to the wire service. Hilfiger said it still may sell shares in Amsterdam once "market conditions have stabilized," according to the report.

Private equity firms, of course, get their biggest returns when they sell or recapitalize a property. According to Bloomberg, four other European companies have already delayed IPOs since the markets began collapsing at the start of the year.

If Apax senses that investors are less than keen on Hilfiger-type deals, the offering scheduled later this week for RiskMetrics is being more warmly anticipated.

Scott Sweet, managing director of research firm IPO Boutique, told the Associated Press that this IPO "probably couldn't come at a better time." RiskMetrics provides risk-management and corporate governance services, including through its Web-based RiskManager market-risk system, which allows customers to measure portfolio risk across security types, geographies, and markets. At a time of collapsing markets or fears of them — kicked off by the very real collapse of the subprime mortgage market — such risk management services have become viewed as especially valuable.

The AP notes that RiskMetrics also benefits from broader trends that include growing global financial markets and investment portfolio complexity, increasing regulatory requirements, and a greater focus on corporate governance practices.

RiskMetrics also benefits from being a solid, well-known company with its own financial clout. Its client list of 3,500, in 50 countries, includes 70 of the 100 largest investment managers, 34 of the 50 largest mutual-fund companies, 41 of the 50 largest hedge funds ,and the 10 largest global investment banks.

In the latest nine months ended Sept. 30 the company's revenue more than doubled to $172.7 million, although earnings plunged to $1.2 million from $12.3 million as a result of its ISS acquisition.

"Their business is fairly transparent, which I like to see," Francis Gaskins, president of IPODesktop.com, told the AP. "They're in an industry that doesn't require capital expenditures, and you don't want capital expenditures in this debt climate."

Hilfiger joins several other high-profile companies in delaying or canceling IPO plans so far this year.

U.S. companies BGMedicine and CDM Resource Partners pulled their IPOs on Wednesday, so that the Hilfiger pull-back brings to seven the number of flotations cancelled here in 2008.

While 2007 marked the largest number of U.S. public offerings, at the highest total volume, since 2000 — with 234 deals worth $54 billion — close to 50 companies withdrew also offerings, according to IPO research firm Renaissance Capital.

For buyout firms, 2007 was viewed as a relatively lucrative year to take their investments public. Private equity sold stakes in 93 companies, raising $20.1 billion, according to Dealogic. That was down slightly from 90 companies, and $21.3 billion, in 2006.

Volume dropped substantially in September, however, as the markets began taking a series of hits from the subprime crunch and other events.




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