IPOs: Fosun Looks for China Magic in Ironshore NY Listing

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Bottom line: Fosun’s New York IPO plan for US insurer Ironshore could draw strong interest due to Fosun’s China and global connections, and may ultimately raise up to $1 billion later this year.

Fosun eyes NY listing for Ironshore

China’s recent global buying spree has created some interesting investment opportunities, as Chinese acquirers increasingly look to western investors to help pay for their purchases. One such new opportunity is in the headlines this week, with word that Chinese private equity giant Fosun (HKEx: 656) is aiming to launch a New York IPO for its recently acquired US insurer Ironshore. In this growing trend, the Chinese investors are hoping to generate some buzz for this kind of IPO by taking regionally-focused assets and repositioning them as global plays, often with a big China focus.

Two similar earlier deals have actually done quite well, one involving Chinese meat producer WH Group (HKEx: 288) and the other leading movie theater operator Wanda Group. The former case saw WH Group, previously known as Shuanghui, purchase leading US pork producer Smithfield, and then later list the entire company in Hong Kong. The latter saw Wanda buy US movie theater giant AMC Entertainment (NYSE: AMC) from a private equity owner, and then make a New York listing for the company about a year later.

We’ll take a look at the logic behind those 2 deals and how the shares have done these last few years shortly, but first let’s recap the latest headlines involving Fosun and Ironshore. Focus purchased the US property and casualty insurer in stages over 2 years for a total of $2.3 billion, as part of a broader strategy that has seen it buy a number of insurance assets worldwide. Now the group’s founder Guo Guangchang is saying he wants to list Ironshore in New York “as soon as possible” this year. (English article; Chinese article)

Fosun said last week it was looking to spin off Ironshore, but didn’t give any additional details. Guo, the Shanghai-based investor sometimes likened to a Chinese Warren Buffett, said the market would determine the size of the IPO, but added that “the bigger, the better.” Based on the purchase price and usual practice of selling around 20 percent of a company’s shares into an IPO, we can probably expect this offering to be worth anywhere from around $500 million to as much as $1 billion.

To see how this offering might fare, it’s helpful to look at how the pair of previous deals I mentioned above have performed. In both cases, the Chinese buyers purchased the big US assets with their own funds, and then used offshore IPOs to help repay that debt. The strategy looks relatively smart, because foreign investors were quite familiar with the acquired companies in both cases. And in both cases, the added element of an owner with good access to the huge China market provided an extra attraction.

Outperformers

The AMC deal has done extremely well since its listing in 2013, even though the deal itself was somewhat controversial at the time. Since the listing, which raised $330 million in December 2013, AMC Entertainment shares have risen a healthy 47 percent, or quadruple the 12 percent rise for the broader S&P 500 over that period.

WH Group’s stock is actually down nearly 4 percent from its listing in 2014, when the company raised about $2 billion via a share sale in Hong Kong. That particular listing drew lukewarm demand, in part because Smithfield was struggling when WH bought the company. But the 4 percent drop actually represents a strong outperformance of the broader market, which has dropped 17 percent over that period if we use the benchmark Hang Seng Index as an indicator.

All that said, let’s return to Fosun and Ironshore, which is part of a global insurance empire the Chinese parent is trying to build. That empire includes a growing number of global companies, including ones in Portugal, the US, Hong Kong and China, with a total of 180 billion yuan ($27 billion) in assets under management at the end of last year. Guo is quite a savvy investor, and I expect his team has been working hard to create synergies and cross-selling opportunities between his growing stable of insurance companies, helping to boost their value.

We’ll have to wait and see some actual financials for Ironshore before saying more about how well the IPO will do. But I do expect the figures should be relatively attractive, and Guo and Fosun’s reputations as savvy investors and their China connections should also help to generate some buzz. The outperformances by AMC and WH Group should also add some attraction, meaning Ironshore could ultimately become a fairly hot IPO that could raise up to $1 billion.

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