Floats that do not raise new capital for investment simply transfer equity ownership from vendors to the public. When a vendor walks away with all, or nearly all, the float proceeds this signals that the vendor, who knows more about the business than you the investor, thinks the stock is a strong sell at the issue price. The float of Dick Smith, in which $405 million of the $418 million to be raised will be paid out to the private equity vendors, is therefore unattractive. Nine is not much better, while Veda is the most attractive on this count. I would be more impressed with Dick Smith if the private equity vendors retained meaningful skin in the game – holdings of, say, 30%+ – while signalling this business has growth potential by raising new equity capital. Time will tell, but the Dick Smith float has similar traits to that of Myer a few years ago.
