Lego has trumped Goldman Sachs in the $1.5 billion flotation of ISS, a cleaning and catering group based in Denmark.
Lego, owned by the Kirk Kristiansen family of Denmark, made a minority investment in ISS in 2012 to help cut its debt. ISS’s successful stock market debut has brought a huge return for the Lego latecomers. That left ISS’s other owners, the private equity firm EQT and Goldman, in the dust.
The March 13 initial public offering of ISS went well. Its stock priced at 160 Danish crowns and closed up 14 percent at 182.7 crowns. EQT, backed by Sweden’s powerful Wallenberg family, and Goldman’s private equity gurus, sold one million shares at the float price, and may offload 7.7 million in the coming weeks. They retain 89.5 million additional shares. So their holdings, plus the 160 million crowns already raised, are now worth 17.9 billion crowns, or $3.3 billion United States dollars.
That gives a 2.3 times gross return on the 7.7 billion crowns of equity that EQT and Goldman invested in ISS’s leveraged buyout in 2005. Neither firm made any further investments into the business, nor did they take dividends out. That means the investment to date has delivered a less-than-stellar 10 percent gross annual rate of return.
For the investment clients of EQT and Goldman, the return will be even lower because of fees. In typical private equity funds, these can run to 1.75 percent in annual management charges and 20 percent of investment gains. The shares of ISS’s listed rivals would have been a simpler and more lucrative bet. Investors who bought Sodexo or Compass stock in May 2005 and reinvested dividends have roughly quadrupled or quintupled their money, respectively, Thomson Reuters’s Datastream showed.
For EQT and Goldman, this deal was marred by high debts, and numerous failed attempts at sales or flotations. Contrast that with the rapid profit for the Lego billionaires’ investment vehicle, and their partners in the 2012 equity injection, the Ontario Teachers’ Pension Plan. The duo’s investment of 3.7 billion crowns has turned into stakes worth 6.4 billion crowns, for a 41 percent internal rate of return.
Investing in private companies not long before they go public can backfire. Ask Norway’s oil fund, which is regretting a move into Formula One. But here it allowed the Ontario pension plan and the Lego family to profit handsomely.
