Bankers miss out on $35m payday as Latitude Financial’s $3.2bn IPO collapses

Ben Butler
Photograph: Lukas Coch/AAP

One of the year’s most-hyped share market floats, the $3.2bn Latitude Financial IPO, has failed after superannuation funds led by the nation’s biggest, Australian Super, decided not to purchase shares in the company.

Latitude, a lender which is part-owned by private equity group KKR and helmed by controversial businessman Ahmed Fahour, decided to yank the offer late on Tuesday afternoon, robbing investment bankers working on the deal of a payday of up to $35m.

The collapse of the IPO also means Fahour, a former chief executive of Australia Post, will miss out on a $22.5m bonus for listing Latitude, which was to be paid in company shares.

It is the second time Latitude’s owners have tried and failed to sell the company, raising questions about whether Australian investors have forgiven private equity groups for floats such as the disastrous Myer IPO a decade ago.

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In that deal, US private equity group TPG sold Australian investors Myer shares at $4.10 each and trousered $1.4bn, which it sent offshore with the taxation office in close pursuit. Shares in the department store immediately plummeted and were changing hands at about 58c on Wednesday morning.

Australian Super, which manages more than $170bn in retirement savings, is understood to have told the brokers organising the Latitude float it would not be participating several weeks ago.

Other large institutional investors also balked at the price of shares in the group, which organises loans for borrowers including customers of retail chain Harvey Norman.

“Most of the investment managers will say that the IPOs on offer aren’t very good, particularly those from private equity,” said Norman Zhang, the chief investment officer of $5.4bn super fund Media Super.

He said Media Super used an external fund manager, Yarra Capital, to assess investment opportunities similar to Latitude.

“They are looking for quality companies and I wouldn’t consider Latitude to be a quality company,” he said.

The core of the Latitude business is the lending operation formerly run by GE Money, which the American group sold to a consortium made up of KKR, another US private equity group, Varde Partners, and troubled German bank Deutsche Bank, in 2015.

Loan books of this type are well understood by large investors, but in preparation for its float Latitude also talked loudly of a future as a fintech, saying it was going to take on buy-now pay-later operation and share market darling Afterpay.

The IPO’s failure will sting Fahour, who quit Australia Post in February 2017 amid a stoush with the government over his $10.8m a year payout.

Fahour previously ran the Australian operations of NAB but quit in 2009 after failing to secure the top job at the bank.

An army of investment bankers and brokers who had been hoping to share in up to $35m in fees for arranging the IPO will now see nothing for their work.

The investment bankers at Goldman Sachs, Macquarie Group and UBS who had been running the deal will feel the pain the most, but brokers at Bell Potter, Morgans, Wilsons, the CBA, Craigs, Crestone, Escala, Evans Dixon, NAB and Ord Minnett will also miss out.

Latitude had initially hoped to sell between $1.2bn and $1.4bn worth of shares for between $2 and $2.25 each.

However, on Tuesday it dramatically reduced the size of the deal, slashing the amount of stock on offer to $1bn and the price to $1.78.

The price cut was not enough to get the offer over the line and on Wednesday morning Latitude formally killed the IPO.

“Despite extensive engagement with prospective investors the board and shareholders have determined not to proceed with the offer,” chairman Mike Tilley said.

Fahour left open the possibility of a third attempt to offload Latitude.

“While it is disappointing that we are not in a position to progress a public listing at this stage, we will continue to execute on the growth strategy with the support of our shareholder group,” he said.