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Case Study

Rotoplas: The initial public offering

By Nuno Fernandes, Kenichiro Kubo and Sandra Baena

8 pages

June 2017

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Reference: IMD-7-1771

The limited availability and access to water in Latin America together with the public policy makers’ focus on delivering quality water to more citizens were expected to translate into a continuing and increasing demand for water. Rotoplas estimated the market potential for water solutions to be US$600 billion. Based on this analysis, Rotoplas announced its IPO on December 2014. The proceeds of the IPO would be mainly utilized to finance capital investments and working capital, to expand the individual solution business unit in the US, to consolidate its consolidated solutions business in Mexico and Brazil and to finance inorganic growth through possible acquisitions. While Rotoplas believed that there would be continued and strong demand for its water solution business, its IPO had some risks. Demand growth depended heavily on government policy. If changes occurred in government policies, the growth and opportunities for the business could be at stake. Another risk was the volatility of its sales, which depended on the weather. Finally, operations were highly dependent on the key raw materials – polyethylene and polypropylene – both of which were heavily affected by the volatility of oil prices. Would this growth actually take place after the company decided to go public? Did the use of the proceeds justify the decision to go public? Was it a good idea for investors to have growth expectations for Rotoplas during the presidential transition in Brazil, Rotoplas’s main market outside of Mexico?

Learning Objective

IPOs
Raising capital in emerging markets
Valuation

Keywords

Finance, Strategy, Equity, Initial Public Offering

Settings

Latin America
Rotoplas, Manufacturing, Chemicals, Services, Water Supply and Sanitary Services
2014–2016

Type

Published Sources

Available Languages

English

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