The $1 billion return of cleaning and catering services firm Spotless to the share market is set to be the largest listing in nearly four years.
The May listing is also the latest example of private equity buying underperforming companies and returning them to public hands at a much higher price.
After less than two years in the hands of Pacific Equity Partners, Spotless plans to sell 51 per cent of its shares for up to $1 billion, valuing the company at nearly $2 billion.
That makes it the most valuable public offering since the $4.6 billion privatisation of QR National in November 2010.
Pacific Equity Partners bought control of Spotless in August 2012 for $720 million, and in the past 19 months has sold two of its divisions, cut costs and reorganised its structure.
Before it was taken private by Pacific, Spotless had been a stock market stalwart for more than half a century.
Spotless began as a dry cleaning business in Melbourne in 1946, and after listing on the local market in 1961, expanded into food, grounds maintenance and cleaning services.
In its prospectus released on Monday, Spotless forecast a net loss of $41 million in the current financial year – due to costs related to its restructure – increasing to a profit of $135 million in the next year.
“Our growth strategy is underpinned by stable underlying market growth, an increasing trend towards outsourcing in Australia, growth in market share in sectors where Spotless is currently under-represented and opportunities for expansion into adjacent markets and services,” chief executive Bruce Dixon said.
The company will offer 51 per cent of its shares to brokers, institutional investors and employees for up to $1.85 each, and expects those shares to begin trading on the ASX on May 23.
The proceeds are to be used to repay debt and allow existing shareholders to realise part of their investment.
IG markets strategist Evan Lucas says demand will be high, as the company is well known to investors.
But it’s earnings structure and profit margins are not outstanding, he said.
He cites the listing of Myer by private equity firms in 2009, and Dick Smith’s purchase by Anchorage Capital Partners in 2012 and public listing just 14 months later, as potential warnings to retail investors.
Myer shares listed at $4.10 and are yet to rise above that level, while Dick Smith shares have remained relatively steady, while its private equity owners pocketed hundreds of millions of dollars.
“Private equity has done incredibly well out of these IPOs in the last four or five years, but obviously Dick Smith and Myer are prime examples of where private equity has done incredibly well, but nobody else has,” Mr Lucas said.