A shelved IPO and a fickle mistress
EYES WIDE OPEN - Iris Gonzales (The Philippine Star) - October 21, 2019 - 12:00am

The stock market might well be called a fickle mistress, so says a reader.

The reader who goes by the Twitter handle Merkado Barkada, was replying to my story on the shelved initial public offering of MPIC Hospitals.

The comparison was on point. The market after all has become more unpredictable than it has ever been, struggling with pangs of highs and lows, and mood swings ranging from ecstatic to depressed.

Some months back, investment bankers were just about to pop the champagne bottles because the index was on a roll. Several companies were already scrambling to list.

The hospital arm of Metro Pacific Investments Corp., the sprawling tollways and infrastructure conglomerate of the MVP Group, was one of those IPO-bound companies. But MPIC announced last week it had signed a deal with global investment fund KKR instead.

What happened?

Did MPIC Hospitals shelve the plan because the market turned out to be a notoriously fickle mistress? Or was there really no plan to proceed with the offering in the first place? Did the company really intend to just talk to private equity funds?

These were the questions on the minds of some market observers, even as some months back, some traders already predicted that the listing was not going to happen.

I asked David Nicol, the indefatigable CFO of MPIC about what happened and here’s what he said:

“We were pursuing the IPO idea. Draft filings with PSE and SEC were done and within the course of doing that, we have already spoken with one or two prominent investors,” David said in a phone interview.

The company was faced with a very difficult set of choices, all of them high quality, he added.

“But we had to make a decision. We started with the belief that the IPO will be a good balance and we believed that. Circumstances changed, new opportunities presented themselves and without in any way sacrificing value -- compared to the IPO feedback -- we’ve found ourselves really say, ‘we should think very very deeply about the discussions we’ve had with Ashish and his team (at KKR),” he said.

In the end, David said, the KKR offer was deemed better for all stakeholders - doctors, employees, and most importantly, the patients of MPIC Hospitals.

“And from a value perspective for our shareholders, it’s a better play as well because we were able to raise liquidity now with a very good price from what I expected -- about the same as the IPO -- and yet we’ve got a nice shareholder, going forward. And I think that will grow much, much faster in value than it would have with the IPO or the continuation of the same business model.

“This was just much, much more compelling for us. I think had we known that KKR would be able to bring all of this, we probably wouldn’t have thought of having an IPO in the first place,” he explained.

Market reaction

David has explained it well and for successfully sealing a good deal, he and his team certainly deserve to pop some champagne.

Of course, whether or not the market agrees with MPIC’s move is another story. MPIC shares nosedived to P4.90 per share on the day the news came out, dropping 3.16 percent.

Here’s Abacus Securities Corp.’s take on the MPIC deal. Thank you Nicky Franco for sharing with me your invaluable insight.

“Management said the deal values MPHHI at 22 x EBITDA and 58x earnings on 2019 numbers. These are extremely good numbers and investors should be happy. Again, however, the market had been conditioned to expect nothing less than $2 billion and potentially even greater than $3 billion from a prospective IPO which has now been shelved for at least a few years.”

Moving forward

Not surprisingly, investors who were already looking forward to placing their bets on MPIC Hospitals were disappointed big time. For now, they’ll just have to choose from other IPO-bound companies such as Fruitas and Cal-Comp.

These two companies recently got the SEC’s approval to list in the market and from the looks of it, they’re willing to brave the moods of the fickle mistress.

Iris Gonzales’ email address is eyesgonzales@gmail.com. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com


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