Hertz
1. Why are the private equity sponsors pursuing an IPO of Hertz at this time – that is, what is the purpose of the IPO?
The sponsors wanted cash in order fund another special dividend. They felt that even though they had only owned the company for short time, they were in the perfect position to sell it. There are several reasons why 2006 was an opportune time for the IPO of Hertz. The market was on the rise with the S&P up over 10% on the year. The IPO market itself was incredibly strong, outperforming 2005 by November. As the case states “198 IPOs had price raisings approximately $41 billion. The pricing of IPOS also seemed solid. Of the 198 deals, the average first-day return (not annualized) was 8.8%. After four weeks, nearly 60% were …show more content…
During the time of this deal, the Great Recession was nearing its start, so the market took a big hit with that being said. Both sponsor and non-sponsor backed IPOs underwent price declines in their share-price valuation during this time, which should be viewed as a negative when considering investing in sponsor backed IPOs. To build on that with something that can be viewed as a positive, is that sponsor backed IPOs fell at a lesser rate than non-sponsor backed IPOs, decreasing at roughly 9% and 12% respectively. Another positive of sponsor backed IPOs is that they tend to generate greater post IPO price appreciation than that of non-sponsor backed IPOs. All in all, PE sponsors, “create value from being able to invest and operate with a longer-term perspective than public companies.” This long term perspective leads sponsors to make tougher decisions in terms of operations and debt, as well as being able to, “hold managers more accountable for higher levels of performance than public companies.” The quick exit tactic often used by PE sponsors does however bring to debate whether these sponsors are, “in it for the long haul or only for
The sponsors wanted cash in order fund another special dividend. They felt that even though they had only owned the company for short time, they were in the perfect position to sell it. There are several reasons why 2006 was an opportune time for the IPO of Hertz. The market was on the rise with the S&P up over 10% on the year. The IPO market itself was incredibly strong, outperforming 2005 by November. As the case states “198 IPOs had price raisings approximately $41 billion. The pricing of IPOS also seemed solid. Of the 198 deals, the average first-day return (not annualized) was 8.8%. After four weeks, nearly 60% were …show more content…
During the time of this deal, the Great Recession was nearing its start, so the market took a big hit with that being said. Both sponsor and non-sponsor backed IPOs underwent price declines in their share-price valuation during this time, which should be viewed as a negative when considering investing in sponsor backed IPOs. To build on that with something that can be viewed as a positive, is that sponsor backed IPOs fell at a lesser rate than non-sponsor backed IPOs, decreasing at roughly 9% and 12% respectively. Another positive of sponsor backed IPOs is that they tend to generate greater post IPO price appreciation than that of non-sponsor backed IPOs. All in all, PE sponsors, “create value from being able to invest and operate with a longer-term perspective than public companies.” This long term perspective leads sponsors to make tougher decisions in terms of operations and debt, as well as being able to, “hold managers more accountable for higher levels of performance than public companies.” The quick exit tactic often used by PE sponsors does however bring to debate whether these sponsors are, “in it for the long haul or only for