Redox IPO pricing outcome now likely to take longer

Redox Chemicals company premises at Dry Creek. Picture: Supplied

A pricing of a float of chemicals distribution business Redox now appears to be at least days away, after expectations started mounting late last week that the group would have had a timeline and price locked in by now.

Sources have told DataRoom that additional meetings with institutional investors have been added to the diary this week, but the market continues to watch with interest.

As a major push got underway last week to attract retail investors, with co-lead managers Shaw and Partners and Wilson’s added to the initial public offering campaign, there was growing optimism around the outcome.

But now, where it lands is becoming less clear among many in the market, despite sources close to the company maintaining that demand for the deal is strong, and it remains on track.

One of the challenges for the advisers working on Redox, which includes UBS and Ord Minnett, is that the company has about 30 family shareholders who will all need to agree on the price.

The price being discussed around the market last week was one equating to 14 times expected net profit for the 2024 financial year of $97.4m, taking its overall valuation to about $1.4bn.

The theory earlier was that this was in line with vendor expectations, although this now remains unclear, as does the amount of demand at this level.

There is a lot riding on the float, as a successful deal will be good news for others hoping to hit the IPO runway by the end of the year, after the market has effectively remained shut for listings for a year.

Redox is a quality business and ticks a lot of boxes when it comes to investors, in that it is family owned, profitable and established, and that the sell down is only anticipated to be 30 per cent with the owners maintaining skin in the game.

An IPO has been on the cards for some time, and the group is said to have rebuffed acquisition offers, with a listing being its preference.

But if the conditions are not right, the question is why wouldn’t the family wait until the share market conditions are more conducive for listings?

UBS analyst meetings finished on Wednesday last week with the offering extended to additional institutional investors in Australia, not originally shown the business.

This was after meetings happened with investors the prior week to seek their interest in offering cornerstone support.

No cornerstone investors have yet been locked in.

Founded in 1965, Redox is owned and run by the Coneliano family, with Raimond Coneliano chief executive.

It has 960 global suppliers and 6,300 customers in 170 industries, with operations in New Zealand Australia, the United States and Malaysia.

The company’s fastest growing operations are in the United States, where sales increased $53m to $72m last year in what is a $22bn market.

Investors were told that the company has a long track record of growth, with an 11.4 per cent, ten-year average annual revenue growth in 2022 and 20.5 per cent return on capital in fiscal 2022.

Being diversified, the business does not rely heavily on any particular supplier or customer, with the largest individual supplier representing about 3.1 per cent of sales and the largest customer representing about 1.8 per cent.

Last year, it generated over $140m of annual earnings before interest, tax, depreciation and amortisation.

Meanwhile, at the Stockbrokers and Investment Adivsers Association Conference in Sydney on Tuesday, Perpetual portfolio manager Anthony Aboud told the audience that Perpetual saw opportunities with IPOs and had done well in teh past investing in family backed businesses such as Reece and Event Cinemas.

He said as interest rate hedges come off this year, companies that previously appeared to have low debt levels now look like they are over geared.