UK Fund Manager to the IPO market. Gartmore was a long established brand, but as with many floats, had no real reason to go to the Public Markets except to allow the management to get shares and cash out.
Here we are just into 2011, barely 2 years later and Gartmore, floated at 220p has been bought out by Henderson for the equivalent of 92.1p. A spectacular loss for the Investors and at a time when the FTSE and other main markets have risen 50% - so a double whammy.
Gartmore had a horrific time as a Public Company, there were staff fights and FSA investigations followed by inevitable client withdrawals, effectively crippling the business until a buyer could be found.
What this does show is a number of things:
Firstly, never buy companies that don't need the IPO money. If management wants a payout they should wait for the revenues to come and pay themselves dividends or sell the business entirely. IPO's for this reason distract management and ruin businesses; Gartmore is a text book case of this.
Secondly, there have been in the last 2 years some truly terrible IPO's in the UK and far fewer successful ones. Again, the Investment Banks play fast and loose with the companies to get them away and secure their fees. The prices are often not so much too high, the recession has put paid to that, but the Risks are under-rated and future performance over-rated.
Thirdly, Gartmore is a business where the key assets are people held to contracts which they can easily break under employment laws - or as in the case of Gartmore's Roger Guy, they can face professional or personal issues at any time that undermine their role. This then has a catastrophic effect on the business. Fund managers are prone to this; as are Hedge Funds, Lawyers etc. Businesses that reply for revenue generation on a few key people simply are not suited to the public markets and Gartmore again is a classic case of why this is so. The only other key asset is the 'Brand' which itself is tied up with the people who live it. In this deal it should be noted that Henderson is ditching the now toxic Gartmore brand instantly; again accountants put high intangible values on Brands but they are prone to instant devaluation in these types of businesses.
As such I expect there to be a de-rating of Fund managers as an sector and certainly would not invest in this business. The staff are get the rewards, not the shareholders who simply hold the risk on behalf of the staff.