Bill Ackman and Pershing Square's Failed IPO

Bill Ackman's Pershing Square USA Withdraws Planned IPO

Bill Ackman's investment firm Pershing Square USA withdrew its planned initial public offering (IPO) on Wednesday, July 31, 2024. The IPO was initially expected to raise around $25 billion, which would have made it the largest ever trust IPO in US history.

Ackman cited waning investor interest as the primary reason for withdrawing the IPO. He mentioned that while Pershing Square USA received significant investor interest, a key question remained: "Would investors be better served waiting to invest in the aftermarket than in the IPO?" This led the firm to reevaluate the IPO's structure.

The planned IPO size was dramatically reduced in the weeks leading up to the withdrawal, from the initial $25 billion estimate down to around $2 billion. One of the key investors, hedge fund Baupost Group, which had pledged $150 million, pulled out in the days before the withdrawal.

Consequences for Pershing Square Holdings

The failed IPO had implications for Pershing Square Holdings, Ackman's London-listed vehicle. There were plans to offset fees on Pershing Square USA against performance fees on Pershing Square Holdings, which would have benefited investors in the London-listed fund.

Additionally, there were plans to reduce Pershing Square Holdings' significant stake in Universal Music by selling some of the position to Pershing Square USA. However, these plans became moot as Universal Music's share price plummeted following a disappointing Q2 update, causing a significant drop in Pershing Square Holdings' value.

The decline in investor interest for Bill Ackman's Pershing Square USA IPO can be attributed to several key factors:

1. Investor Sentiment on Aftermarket Participation: A significant concern among potential investors was whether they would be better off waiting to invest in the aftermarket rather than participating in the IPO. This question led Ackman to reassess the IPO's structure, indicating that the investment decision was not straightforward enough for many investors.
2. Dramatic Reduction in IPO Size: The initial target for the IPO was $25 billion, but this figure was reduced to around $2 billion shortly before the withdrawal. This drastic cut reflected a lack of confidence from investors, which likely contributed to their hesitance to commit funds.
3. Withdrawal of Key Investors: Notably, hedge fund Baupost Group, which had pledged $150 million, pulled out just days before the IPO was withdrawn. The loss of such a significant investor likely signaled to others that the offering lacked sufficient backing.
4. Market Conditions and Volatility: The broader IPO market was experiencing uncertainty due to cooling inflation data and the upcoming 2024 presidential election. This environment may have made investors more cautious about committing to new offerings.
5. Concerns Over Fund Structure: The structure of the closed-end fund was problematic from the outset. Investors were wary of the fund's ability to achieve a premium over its net asset value, especially when similar vehicles were trading at discounts. This concern likely made the IPO less attractive.
6. Ackman's Public Image and Communication: Ackman's active presence on social media and some missteps in communicating with potential investors may have also played a role in diminishing confidence. His controversial statements and the premature disclosure of confidential information could have alienated some institutional investors.
7. The initial expectations for the Pershing Square USA IPO were quite ambitious, with a target offering size of $25 billion. This would have made it the largest closed-end fund IPO in U.S. history. The shares were expected to be priced at $50 each, with plans to issue 40 million shares and an additional option for underwriters to purchase up to 6 million shares for over-allotments.However, the initial enthusiasm began to wane as investor sentiment shifted, leading to a significant scaling back of expectations. Ultimately, the offering was reduced to approximately $2 billion, which represented less than one-tenth of the original target