Forsyth Barr and the New Zealand Rugby Players Association (NZRPA) believe the valuation of NZR’s commercial rights (Commercial Co) is between $3.4 and $3.8 billion, 12-23 percent higher than the Silver Lake valuation of $3.1 billion.
Selling 5 percent of NZR’s commercial rights at the Forsyth Barr valuation is expected to deliver between $171 and $191 million.
This is significantly less than the cash boost of $387 million that NZR is expected to receive under the Silver Lake deal.
The players’ union and Forsyth Barr, on the other hand, conclude that the alternative deal would allow NZR to devote the same amount of money to Provincial Unions (PUs) and the Mori Board as the Silver Lake proposal, $39 million.
Forsyth Barr believes that the proceeds from a NZ Inc IPO Offer of 5% of income-generating assets would also allow NZR to make a $50 million capital contribution to Commercial Co, as suggested by Silver Lake, and result in NZR reserves of between $136 million and $154 million, significantly more than their reserves policy target (40 percent of their cost base) and pre-Covid-19 reserve rate.
But New Zealand Rugby has reacted angrily to the players association’s proposal.
New Zealand Rugby chief executive Mark Robinson said the Players Association is trying to destory the Silver Lake deal by publicly releasing the proposal rather than sharing it with NZR first.
New Zealand Rugby have previously shot down the idea of selling a stake of its commercial rights in an IPO style sale, saying it wouldn’t work and would only appeal to ‘mum and dad’ investors, not commercial investors.
However Forsyth Barr believes that there would be considerable demand from NZ investors and have set out their expectation that between $450m and $650m of demand would be generated by an NZ Inc IPO in their assessed IPO value range.
The New Zealand Rugby Players Association president, former All Black World Cup winning captain and Forsyth Barr chair, David Kirk, says New Zealand Rugby are obligated to look at the new proposal.
“What I think we have done is provided them (NZR) with much more certainty and much more clarity about the nature of this deal. Now I think it would be very hard for them to say we’re not going to consider this because there’s a lot more detail now and there’s a lot of confidence it can be executed and very importantly, the valuation (of the sale of commercial rights) is higher.”
They believe demand would be anchored by New Zealand institutional investors (i.e. KiwiSaver schemes and other funds) and NZ-based wealth management networks.
Forsyth Barr proposes that a public pool be prioritised to ensure a broad range of New Zealanders can apply and suggest a minimum investment amount of $100 per investor to capture what they expect to be widespread public interest.
Forsyth Barr claim the demand for the offer would be strong enough for them to be able to present NZR with a fully underwritten offer, substantially de-risking the capital raising.
The players association and David Kirk believe using the forecasts provided to them by NZR, the sale to Silver Lake of 12.5 percent of revenue introduces a very high level of financial risk into New Zealand Rugby’s operations.
“One of the biggest concerns with the Silver Lake deal is NZ rugby are selling 12.5 percent of their revenue forever. If you sell 12.5 percent of your revenue and keep 100 percent of your cost, you’re going to have an unprofitable business. That’s what that Silver Lake deal shows, that NZ Rugby is not profitable out to 2025, which is the end of their forecast, but if you only sell 5 percent and retain 95 percent then you can have a profitable operating business,” Kirk said.
NZRPA claim because NZR is selling 12.5 percent of revenue forever and retaining all the costs, NZR’s operating profitability is severely reduced.
NZRPA said, in 2025 (which is as far as NZR’s forecasts go), after four full years of Silver Lake’s help with new growth initiatives, NZR’s rugby operations are loss-making.
According to New Zealand Rugby forecasts, in 2025 the sale of 12.5 percent of revenue results in the sale of 101% of operating profitability. This is assuming Silver Lake achieve all of the revenue upside they and NZR are forecasting.
If only 50 percent of the projected revenue upside is achieved NZR suffers very significant operating losses.
The players association and Forsyth Barr believe a key feature of the NZC Inc IPO is that NZR would retain 95 percent of revenue and therefore be more operationally profitable business.
For example, NZRPA said under the Silver Lake proposal in 2025 NZR is a loss-making rugby business relying on $20m in investment income.
Under Forsyth Barr’s 5 percent scenario, in 2025 NZR achieves a $14m profit from rugby operations and additional investment income of $7m.
However NZRPA accepts that under the NZ Inc IPO NZR is unlikely to set up a Legacy Fund immediately. In the Silver Lake deal a legacy fund of significant amount would be established to fund what NZR calls “longer term strategic initiatives to ensure the sustainability of all levels of rugby in New Zealand.”
However the players association said that under the Forsyth Barr proposal, rather than relying on interest income from a Legacy Fund to benefit the community game, NZR retains an additional 7.5 percent of revenue.
The proposal claims revenue is projected to grow faster than investment income (8 percent v 6 percent) and that retaining more revenue is significantly more valuable to NZR and the community game than additional investment income.
NZRPA said believe that over time, and given starting reserves of $136-$154m, NZR will be able to establish a Legacy Fund.
The players association and Forsyth Barr believe by selling 5 percent to New Zealand investors via a public offer instead of 12.5 percent to Silver Lake, NZR will retain far greater control over its future, more flexibility and optionality, as well as sharing its future results with New Zealanders who wish to invest in the business.
NZR believes that Silver Lake bring a tremendous amount of capability that will fuel much stronger revenue growth than can be achieved if the US investment company don’t aren’t allowed to buy 12.5 percent of revenue.
NZRPA accepts that Silver Lake will provide rapid access to good people who will help New Zealand Rugby grow but they don’t accept that NZR and the NZRPA can’t do most of that together.
NZR have grown revenue at the rate of 8 percent per annum over the last 15 years and NZR had $100 million in reserves at the beginning of 2020.
NZRPA believes there is no need to make a risky sale of 12.5 percent of New Zealand rugby’s revenue stream forever to secure and grow the game.
In summary the players association and Forsyth Barr believe the alternative approach would:
- Provide an opportunity for all New Zealanders to own a slice of New Zealand rugby as opposed to selling to offshore private equity interests, and subsequently to an unidentified new owner when Silver Lake exits.
- Raise capital at a higher valuation than the Silver Lake proposal.
- Raise an amount of capital consistent with the current needs of NZR (More capital can be raised later if needed).
- Ensure a greater level of NZR profitability under a range of operating scenarios.
- Result in the same distributions to provincial unions and the NZ Māori Rugby Board.
- Restore NZR reserves to a level significantly in excess of pre-covid levels and well above NZR’s own reserves policy- Achieve a sound balance between growing the value of the commercial enterprise and investing in the New Zealand game at all levels.
- Allow NZR to undertake a thorough business planning process and secure the capability required to execute that plan without being constrained to Silver Lake networks and approval of key appointments.
- Provide a sustainable platform that enables rugby in New Zealand to prosper in the long term.
- Ensure New Zealand rugby remains firmly in the control of New Zealanders.