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London's Worst IPO Award Has a New Contender

London's Worst IPO Award Has a New Contender

(Bloomberg Opinion) -- The bitter 2018 vintage of British initial public offerings is souring with age. After the dramatic fall of Aston Martin Lagonda Global Holdings Plc and Funding Circle Holdings Plc, yet another shock came on Monday from subprime lender Amigo Holdings Plc, which listed around the same time. The company said the environment was worsening and that its founder and 61% shareholder wanted to sell. Competition to be the most disappointing London IPO of recent years is hotting up.

Amigo’s original listing seemed auspicious. It specializes in so-called guarantor loans underwritten by friends or family. The colorful founder, James Benamor, and others sold 25% of the company on its debut. The listing didn’t struggle to find committed long-only buyers, so it didn’t have to rely on capricious hedge funds. Funds run by Neil Woodford, the renowned stock-picker then still riding high, and Invesco Ltd. bought a combined 11% stake, having already invested in Amigo’s listed peers such as Provident Financial Plc. JPMorgan Asset Management purchased 4% (JPMorgan Chase & Co was also one of the banks on the deal).

Small wonder that the shares climbed on day one and were up 13% within a week. That was despite the evident likelihood that Benamor would want to sell down his remaining stake.

Fast forward to today and a peak market value of 1.5 billion pounds ($2 billion) has dropped to about 250 million pounds. That selloff has been driven by U.K. regulators’ increasing scrutiny of the subprime market. In July, Amigo got a new chief executive officer, Hamish Paton. The following month he cut the guidance for loan growth and rejigged the business model in anticipation of possible regulatory shifts by the U.K.’s Financial Conduct Authority. The shares more than halved. The company can’t have been helped by the liquidation of many of Woodford’s holdings after his fall from grace.

London's Worst IPO Award Has a New Contender

Every business faces external challenges. The question is whether they can preempt them and convince investors they can muddle through. There were red flags about Amigo’s governance during the IPO, when it didn’t satisfy the U.K. governance code’s requirement that a majority of its directors be independent. The non-independent Benamor left the board subsequently and sold some stock. He has returned recently, prompting the resignation of the chairman, in place since 2016. Paton is also off, less than six months into the job.

For minority shareholders it’s a mess. Amigo warned on Monday that business volumes might be affected by yet another strategic review. Meanwhile — despite the company being an obvious takeover target for some time — it confirmed there had been no approaches. That leaves it with one “willing” seller, as the statement puts it, zero buyers yet, an indeterminate standalone strategy and no permanent leadership.

Every IPO prospectus contains risk factors. But in a world where long-only investors feel there’s no need to buy new issues, Amigo will have cost the IPO market friends it dearly needs. 

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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