Dear Private Equity People: Too Soon Guys, Too Soon

I wrote about 2 IPOs recently that I felt were hideous in their capital structure and pointless for investors based on their use of proceeds.

One of those deals, The Dole Food Company (DOLE), had its debut yesterday and for pretty much the reasons I outlined, The Street’s reception was similar to what Michael Richards would receive if he brought his stand up act to the Apollo Theater.

From BreakingViews:

Dole Food’s initial public offering didn’t go so well. The world’s largest fresh fruit and vegetable company priced its deal below the anticipated offering range — it then promptly wilted.

Among other concerns, investors appeared worried about Dole’s debt, which relative to rivals is high. Its performance may serve as a warning to private equity firms hoping to unload assets still lumpy with leverage.

I’m over-generalizing here, but bear with me, because this is important.  We are not yet in a frothy enough market to have LBO shops and private equity firms dump their leftovers on us quite so soon.  In the case of Dole, a stake was sold by its billionaire chairman for the purposes of paying down both the company’s debt and his own (he’s big into Hawaiian real estate).

There’s nothing wrong with that, but as I remarked at the time, why would I want to help facilitate his desire to “get liquid”?  Value of the brand?  Give me a break.

In many cases, we’ve seen companies get levered up to be taken private and then stripped of their cash via “special dividends” to the private equity shareholders.  Once this is accomplished, market environment permitting, the company is then re-IPO’d back to the public.

I’ll pass on that sort of retread, and as Dole’s poor showing demonstrates, many of you must feel the same way I do.

It’s way too soon in the recovery for weak, debt-laden offerings.  Hang on to ’em until the next bubble, boys.

Sources:

Dole IPO Takes a Bruising  (BreakingViews)

Read Also:

Return of the Why-P.O.  (TRB)

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