Posts Tagged ‘IPO’

HCA IPO Rises 4% on Day Dow Falls 228 Points

Friday, March 11th, 2011

HCA Holdings rose about 4.0% in its first day of trading.  This was very impressive, considering the Dow Jones Industrial Average fell 228 points in the same day (3/10/11).  The Dow fell in response to increasing jobless claims, a larger U.S. trade deficit, a larger Chinese trade deficit, and a lower GDP revision in Japan on 3/9/11.  Luckily, HCA was unaffected, which reflects both the strength of the company and its balance sheet.  HCA represents such a large share of the U.S. hospital industry, that institutional money managers probably could not refuse to purchase the security for their portfolios.  HCA’s public competitors include CYH – Community Health Systems and THC – Tenet Healthcare Corp.

According to Bloomberg, “HCA Holdings Inc., the largest publicly traded hospital chain in the U.S., rose 3.9 percent on its first day of trading after completing a record $3.79 billion, private equity-backed initial public offering.

Nashville, Tennessee-based HCA increased $1.15 to $31.15 at 1:16 p.m. in New York Stock Exchange composite trading, even as rising U.S. jobless claims drove the Dow Jones Industrial Index down 137 points. HCA’s offering sold more than 126 million shares at $30 each, the top of the proposed price range, the company said yesterday in a statement.

The IPO’s performance on a day when the market is falling reflects both the strength of HCA’s balance sheet and the momentum in favor of private equity-backed deals being brought to market, said Josef Schuster, founder of IPOX Schuster LLC in Chicago. There’s “plenty of liquidity available” for large U.S. deals like this one, he said.

“The deal underlines the level of confidence among large- cap managers about these type of private equity deals and the for-profit hospital space,” Schuster said in a telephone interview today. “Even with no dividend, investors like the level of cash with this company.”

For-profit hospitals will benefit as last year’s U.S. health overhaul forces consolidation and cost cutting that may leave non-profit competitors at a disadvantage, said Les Funtleyder, an analyst at Miller Tabak & Co. in New York. Investors are also expecting HCA to be added to stock-trading indexes and buying ahead of that, he said.

Blue-Chip Name

“People look at HCA as a blue-chip name in a space they want to get involved in,” said Mark Bronzo, who helps manage $25 billion at Security Global Investors in Irvington, New York, in a telephone interview today. “There just aren’t a lot of names to choose from there.”

For-profit hospital chains such as HCA depend more on commercial payers and less on government beneficiaries than do nonprofits, which have already seen their revenue reduced by government cutbacks, particularly in Medicaid.

HCA competitors among for-profit hospitals include Community Health Systems Inc. (CYH) in Franklin, Tennessee, and Tenet Healthcare Corp. (THC) in Dallas.

HCA’s offering exceeded the Feb. 10 initial stock sale by Houston-based energy-pipeline company Kinder Morgan Inc., which raised $3.3 billion. Private equity-backed IPOs in the U.S. have gotten a boost this year as the Standard & Poor’s 500 Index rallied to the highest level since June 2008, raising investors’ interest in companies acquired through debt-fueled takeovers.

‘Warmer Climate’

“We have a market that’s more willing to take on risk,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $52.5 billion. “This is a much better, much warmer climate for this type of offering.”

The underwriters may exercise an overallotment option to buy as many as 18.9 million additional shares within 30 days, the company said. HCA sold 87.7 million shares, while existing investors sold 38.5 million.

Companies owned by private equity investors have accounted for 80 percent of the funds raised in U.S. IPOs since the beginning of the year, and the shares have gained 10 percent on average through yesterday, compared with 4.8 percent for companies not owned by leveraged buyout firms, Bloomberg data show.

KKR and Bain

KKR & Co., Bain Capital LLC, Bank of America Corp. (BAC) and other owners invested about $5 billion in equity in the $33 billion takeover of HCA. Including debt, it was the largest leveraged buyout at the time.

In acquiring HCA, KKR and Bain chose a company with steady cash flow and a business that’s protected to a large extent from swings in the economy. Cash flow from operations was $3.16 billion in the year before the 2006 buyout, according to data compiled by Bloomberg. As of Dec. 31, 2010, that number was little changed at $3.09 billion.

The company offered as many as 124 million shares at $27 to $30 apiece, according to a filing with the U.S. Securities and Exchange Commission. Charlotte, North Carolina-based Bank of America and Citigroup Inc. and JPMorgan Chase & Co. of New York led HCA’s sale. HCA said it will use the proceeds to repay debt.”

The following links will take you to previous articles we wrote on HCA:

http://leverageacademy.com/blog/2010/04/11/hca-could-have-3-billion-ipo-4-years-after-kkr-bain-buyout/

http://leverageacademy.com/blog/2011/03/04/2310/ – KKR & Bain to IPO HCA at $30/share

Check out our intensive investment banking, private equity, and sales & trading courses! The discount code Merger34299 will be activated until April 15, 2011. Questions? Feel free to e-mail thomas.r[at]leverageacademy.com with your inquiries or call our corporate line.


KKR & Bain to IPO HCA at $30 per Share – Mega IPO, Sponsors to make 2.5x on Deal

Friday, March 4th, 2011

HCA Holdings, the large hospital operator in the world, confirmed that it had set a preliminary price range for its initial public offering of $27 to $30 a share last month.  The company was taken private in 2006 for about $30 billion, with an equity check that was only 15% of its purchase price!  Last year, HCA’s $4.3 billion dividend recapitalization itself made many parties in the deal whole on their initial investment.  The IPO is gravy, icing on the cake.  And to top it all off, this had been done with the hospital operator before: “The company had been under private-equity ownership before, completing a $5.1 billion leveraged buyout in 1989. When it went public again in 1992, it handed its backers, including units of Goldman Sachs Group Inc. and JPMorgan Chase & Co., a more-than- eightfold gain, BusinessWeek magazine reported at the time.”

According to BusinessWeek, after a tepid turnout in 2010, there has been a modest uptick in buyout-backed offerings this year, with several exceeding expectations. Among the recent I.P.O.’s are Nielsen Holdings, Kinder Morgan and Bank United. HCA is currently pitching its offering to investors.

A private equity consortium, including Kohlberg Kravis Roberts, Bain Capital and Merrill Lynch, acquired HCA in 2006, loading the company up with debt. HCA, in its filing, said it planned to use proceeds from its offering to pay off some of its debt.

What a difference 10 months have made for HCA Inc. and its private-equity owners, KKR & Co., Bain Capital LLC and Bank of America Corp.

When the hospital operator, which went private in a record leveraged buyout in 2006, filed in May to go public, U.S. initial offerings were stumbling, with deals in the first four months raising an average of 13 percent less than sought. Rather than press ahead, the owners took on more debt to pay themselves a $2 billion dividend in November, in a transaction known as a dividend recapitalization.

This month, HCA’s owners are betting that stock markets have recovered enough for investors to pick up the shares, even with the additional debt. If they’re right, they may triple their initial investment in what would be the largest private- equity backed initial public offering on record.

“This has been a classic case of buy low, sell high from the beginning,” said J. Andrew Cowherd, managing director in the health-care group of Peter J. Solomon Co., a New York-based investment bank. “Private-equity buyers have timed capital markets perfectly on this deal.”

The offering, if successful, underscores the crucial role played by the capital markets in leveraged buyouts, at times eclipsing the impact of operational changes private-equity firms make at their companies. A surge in demand for stocks and junk- bonds, fueled by asset purchases of the Federal Reserve that sent investors searching for yield, have helped KKR and Bain reap profits from HCA, even as the company remains burdened with $28.2 billion in debt and slowing revenue growth.

Record Deal

KKR, Bain, Bank of America and other owners invested about $5 billion in equity in the $33 billion takeover of HCA, which including debt was the largest leveraged buyout at the time. The backers, who took out $4.3 billion in dividends from HCA last year as the high-yield market soared, stand to get more than $1 billion from the IPO and will retain a stake in HCA valued at about $11 billion.

In acquiring Nashville, Tennessee-based HCA, KKR and Bain chose a company with steady cash flow and a business that’s protected from swings in the economy. Cash flow from operations was $3.16 billion in the year before the 2006 buyout, according to data compiled by Bloomberg. As of Dec. 31, 2010, that number was little changed at $3.09 billion.

The company had been under private-equity ownership before, completing a $5.1 billion leveraged buyout in 1989. When it went public again in 1992, it handed its backers, including units of Goldman Sachs Group Inc. and JPMorgan Chase & Co., a more-than- eightfold gain, BusinessWeek magazine reported at the time.

Income Streams

Unlike some other buyouts of the boom years that had less predictable income streams, HCA has reported revenue growth of between 5 percent and 6 percent every year it was private, except in 2010, when growth slowed to 2.1 percent. Net income has increased 17 percent since the end of 2006.

NXP Semiconductors NV, another 2006 buyout involving KKR and Bain, had combined losses of $5.8 billion between the takeover and its IPO in August. NXP, which sold just 14 percent of its shares, had to cut the offering price, leaving investors with a 21 percent paper loss as of Dec. 31. The stock has more than doubled since the IPO.

HCA, the biggest for-profit hospital chain in the U.S., attributes gains in income to cost-cutting measures and initiatives to improve services for patients. The company sold some hospitals after the buyout and made “significant investments” in expanding service lines, as well as in information technology, HCA said in a regulatory filing.

‘Aggressive Changes’

“HCA was already one of the better operators when it was taken private so it was hard to see how much cost could be driven out of the business,” Dean Diaz, senior credit officer at Moody’s Investors Service in New York, said in a telephone interview. “But they are very good at what they do and are above where we would have expected on Ebitda growth.”

Some of the improvements in earnings have come from “aggressive changes in billing and bad debt expense reserves,” Vicki Bryan, an analyst at New York-based corporate-bond research firm Gimme Credit LLC, said in a Feb. 22 report.

Provisions for doubtful accounts dropped 19 percent last year, to $2.65 billion. Capital spending, or money invested in the company, declined to about 4 percent of revenue last year from 7 percent in 2006. The company hasn’t used its cash to bring down the debt load, which is about the same as it was at the time of the takeover.

That debt will contribute to a negative shareholder equity, a measure of what stockholders will be left with if all assets were sold and debts were paid, of $8.6 billion, according to Bryan. Excluding intangible assets, new investors buying the stock would own a negative $51 per share, she said.

‘Funding the LBO’

“Today’s HCA stock buyers are still funding the 2006 LBO, which enriched many of the same equity owners for the second time, plus the massive dividends and management fees paid to those equity investors who will remain very much in control,” Bryan wrote in the report.

While it’s not unusual for companies that exit LBOs to have more debt than assets, it means they will have to use cash flow to reduce debt rather than pay out dividends, limiting returns for shareholders. HCA’s share price doubled in the 14-year period between its 1992 IPO and the 2006 buyout, not including the impact of stock splits.

Ed Fishbough, an HCA spokesman, declined to comment, as did officials for New York-based KKR, Bain in Boston, and Bank of America in Charlotte, North Carolina.

‘Slight Premium’

Even so, investors may pick up the stock after U.S. equity markets rallied to the highest levels since June 2008. So far this year, eight companies backed by private-equity or venture- capital firms have raised $5.9 billion in initial public offerings, five times the amount that such companies raised last year, according to data compiled by Bloomberg.

At the midpoint of the price range of $27 to $30, the IPO would value the company at $14.7 billion. Based on metrics such as earnings and debt, that valuation would give HCA a “slight premium” to rivals such as Community Health Systems Inc. and Tenet Healthcare Corp., according to a Feb. 22 report from CreditSights Inc.

Community Health Systems, currently the biggest publicly traded hospital operator, in December bid $3.3 billion to buy Tenet in Dallas. If the takeover is successful, the combined company with about $22.2 billion in revenue as of Dec. 31, 2010 will still be smaller than HCA.

With as much as $4.28 billion in stock being sold, the HCA offering is poised to break the record set by Kinder Morgan Inc., the buyout-backed company that last month raised $2.9 billion in an IPO.

‘Medicare Schedule’

Shareholders will also have to weigh the impact of government spending cuts and changes to hospital payment schedules prompted by the 2010 U.S. health law and rules from the Centers for Medicare and Medicaid, which administer the federal programs.

Baltimore-based CMS has been pushing to bundle payments to doctors and hospitals, giving them a set amount for a procedure that has to be split among providers. The agency also plans to penalize providers if patients acquire infections while in treatment or fare badly after stays. Too many readmissions, once regarded as more revenue, may now result in lower payment rates.

The federal health-care law will extend health insurance to 32 million more Americans and may prompt some employers to drop company-sponsored health benefits in favor of sending employees to state insurance exchanges the new law creates. While the newly insured may mean less bad debt for hospitals, fewer private sector-paid benefits may mean lower revenue for for- profits like HCA, because commercial payers and employers tend to pay the highest rates to providers.

Health-Care Impact

“Hospitals are going to have to learn how to be productive and profitable on a Medicare rate schedule,” said R. Lawrence Van Horn, who teaches at the Owen Graduate School of Management at Vanderbilt University in Nashville. Medicare and Medicaid pay less for procedures and treatment than employers and commercial insurers, which are “traditionally the most generous payers,” he said.

HCA said in its filing that it can’t predict the impact of the changes on the company.

For-profit hospitals like HCA depend more on commercial payers and less on government beneficiaries than do nonprofits, which have already seen their revenue reduced by government cutbacks, particularly in Medicaid. Chains like HCA, with their access to capital, may be able to take advantage of weakness among nonprofits to consolidate the industry further, Van Horn said.

Megan Neuburger, an analyst at Fitch Ratings in New York, said the biggest impact of the health-care reform won’t be felt until 2014, and the market recovery will play a more important role for now in determining HCA’s success.

Returning Money

“In the short term, the pace and progress of economic recovery will probably be more influential to the industry’s financial and operating trends than health-care reform,” Neuburger said in an interview.

For KKR and Bain, the timing of the IPO is crucial also because their clients want to see whether buyouts made just before the credit crisis can be profitable, before they commit capital to new funds. KKR is seeking to raise its 11th North American-focused buyout fund this year.

Buyout firms have been able to return some money to investors through dividend recapitalizations, as near-zero interest rates have spurred a demand for junk bonds. Borrowers sold $47 billion of debt last year, or 9 percent of offerings, to pay owners, compared with $11.7 billion in 2008 and 2009, according to Standard & Poor’s Leveraged Commentary and Data.

‘Unprecedented Amount’

Investors in Bain’s 2006 fund have received $1.6 billion in distributions so far, or about 20 percent of the $8 billion deployed. HCA’s dividends recapitalizations accounted for about $302 million of the total Bain paid out to the fund’s clients, according to an investor in the fund. The fund has generated an average annual loss of 6.4 percent, according to another person familiar with the fund.

“Investors committed an unprecedented amount of money over a short time period,” said Jeremie Le Febvre, the Paris-based global head of origination for Triago, which helps private- equity firms raise money. “Investors most likely won’t be as generous a second time, or even have the means to double down on a firm, as reputable as it may be, without first seeing money flowing back into their pockets.”

–With assistance from Lee Spears in New York and Christian Baumgaertel in 東京. Editors: Christian Baumgaertel, Larry Edelman

Here is an article LA put together earlier last year on a possible IPO: http://leverageacademy.com/blog/2010/04/11/hca-could-have-3-billion-ipo-4-years-after-kkr-bain-buyout/.

Check out our intensive investment banking, private equity, and sales & trading courses! The discount code Merger34299 will be activated until April 15, 2011. Questions? Feel free to e-mail thomas.r[at]leverageacademy.com with your inquiries or call our corporate line.


Zynga, Facebook, Groupon Colossal Valuations!

Tuesday, March 1st, 2011

Week after week, investors have seen multi-billion deals for online businesses with suspect business models. In January, Goldman invested in Facebook at a $50 billion valuation. Zynga’s reported $7-$10 billion valuation surpassed that of software giant EA Games. With its recent I.P.O. announced, Groupon even values itself at $15 billion. Some question the reason behind such high valuations…the answer is immense revenue growth. The true question is whether this revenue growth is sustainable:

“Why are venture investors placing colossal valuations on consumer Internet companies like Facebook, Groupon and Zynga? Their revenue growth is simply off the charts.

The Wall Street Journal reported Friday that Groupon’s revenue in 2010 rose more than 22 times to $760 million in its second full year since its daily deals site launched, up from $33 million in 2009. Zynga, the maker of online social games like FarmVille, scored revenue of $850 million in its third full year in 2010, more than triple the year before, and Facebook’s revenue rocketed to as high as $2 billion in 2010, its sixth full year.

Their ridiculous revenue growth rates actually rival those of the four largest Internet companies–Google, eBay, Yahoo and Amazon.com–early on. Taking a look at the line graph below, Groupon and Zynga’s charted growth is steeper than San Francisco’s famous Filbert Street. Over the longer haul, Facebook’s sales fall short of the two Internet kings, Google and Amazon, but top those of eBay and Yahoo, in their first six years.

Granted, Amazon, Google, eBay and Yahoo grew up during the dot-com boom a decade ago when online advertising and e-commerce were in their infancy–so their growth is arguably more impressive–but the chart does highlight just how fast this latest crop of consumer Internet companies has come along, and why venture firms have been fighting to own a piece.

Not only is revenue exploding, but profits are, too. Through the first nine months of 2010, Facebook made $355 million, meaning it likely scored a profit well over $400 million, if not $500 million, for the year. Google’s net income in 2003, its sixth year, was $399 million. Zynga’s profit was also about $400 million in 2010, only its third full year.

Compare all of this with the software industry. As we analyzed previously, less than one-third of the nation’s top software companies reached $50 million in annual sales in six years or less–and the fastest to $50 million, Novell, took three years. Microsoft crossed the $50 million barrier in eight years; Oracle, 10 years.

A big question for these young Internet companies – is the growth sustainable?” WSJ Blog

Check out our intensive investment banking, private equity, and sales & trading courses! The discount code Merger34299 will be activated until April 15, 2011. Questions? Feel free to e-mail thomas.r[at]leverageacademy.com with your inquiries or call our corporate line.


Goldman Values Facebook at $50 billion, Digital Sky Technologies Makes 400% on its Investment Since 2009!

Monday, January 3rd, 2011
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The New York Times announced today that Goldman Sachs and Russian Investor Digital Sky Technologies are investing $500 million into Facebook at a valuation of $50 billion.   According to Second Market, some private investors have bid up the Company’s shares to imply a value of $56 billion.  This bid comes soon after Google announced a $6 billion bid for Groupon a couple weeks ago.  Some call the Facebook valuation astronomical, and it theoretically doubles the net worth of founder Mark Zuckerberg to approximately $14 billion.  Two years ago Microsoft attempted to purchase a stake in Facebook at $15 billion, which at the time was deemed too high.  Digital Technology’s original 2009 stake in Google, which valued the company at $10 billion has since quintupled.  While Goldman is purchasing shares, VC firm Accel Partners is selling very aggressively at much lower valuations.  When examined more closely, with this purchase, Goldman may have bought it’s right to the Facebook IPO.  If Goldman is able to IPO shares of the company at a higher price, it could eventually simply divest of its shares in the open markets at a higher valuation and make a fat fee in the process.
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According to Reuters, “Goldman Sachs is investing $450 million of its own money into Facebook and that it’s bringing along $50 million from Digital Sky Technologies and as much as $1 billion more from its high-net-worth clients — all at a valuation of $50 billion.

The enormous sums of money involved here clearly ratify the valuation: this isn’t a handful of shares trading in an illiquid market, it’s an investment substantially larger than most IPOs.

It’s worth remembering here that only two years ago, when Microsoft bought into Facebook at a $15 billion valuation, that sum was described in the NYT as “astronomical”. But that said, Facebook’s multiples have clearly shrunk from those heady days: in 2007, Facebook could actually use Microsoft’s $240 million to fuel its expansion. Today, it’s reportedly earning $2 billion a year, which implies to me that this is a cash-out rather than a dilutive offering. Facebook has raised, in total, about $850 million to date, and there’s no obvious need for a massive new round of funding which would dwarf that entire sum.

If Goldman is leading the buyers, then, who are the sellers? VC shop Accel Partners has been selling Facebook shares quite aggressively of late, at lower valuations than this. They could easily provide all the shares that Goldman is buying and still be left with a stake worth some $3.5 billion. And it’s entirely conceivable that some early employees might well want to diversify their holdings and have maybe a little less than 99% of their net worth in Facebook stock.

As for Goldman, it has probably bought itself the IPO mandate, which could easily generate hundreds of millions of dollars in fee income. It has also become the only investment bank which can give its rich-people clients a coveted pre-IPO stake in Facebook: the extra cachet that brings and the possible extra clients, make this investment a no-brainer. Facebook doesn’t need to stay worth $50 billion forever — Goldman just needs to engineer an IPO valuation somewhere north of that, then exit quietly in the public markets. And that is surely within its abilities.

According to Dealbook, “the deal could double the personal fortune of Mark Zuckerberg, Facebook’s co-founder.

Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction. The deal makes Facebook now worth more than companies like eBay, Yahoo, and Time Warner.

The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google. The new money will give Facebook more firepower to steal away valuable employees, develop new products and possibly pursue acquisitions — all without being a publicly traded company. The investment may also allow earlier shareholders, including Facebook employees, to cash out at least some of their stakes.

The new investment comes as the SEC has begin an inquiry into the increasingly hot private market for shares in Internet companies, including Facebook, Twitter, the gaming site Zynga and LinkedIn, an online professional networking site. Some experts suggest the inquiry is focused on whether certain companies are improperly using the private market to get around public disclosure requirements.

The new money could add pressure on Facebook to go public even as its executives have resisted. The popularity of shares of Microsoft and Google in the private market ultimately pressured them to pursue initial public offerings.

So far, Facebook’s chief executive, Mark Zuckerberg, has brushed aside the possibility of an initial public offering or a sale of the company. At an industry conference in November, he said on the topic, “Don’t hold your breath.” However, people involved in the fund-raising effort suggest that Facebook’s board has indicated an intention to consider a public offering in 2012.

There has been an explosion in user interest in social media sites. The social buying site Groupon, which recently rejected a $6 billion takeover bid from Google, is in the process of raising as much as $950 million from major institutional investors, at a valuation near $5 billion, according to people briefed on the matter who were not authorized to speak publicly.

“When you think back to the early days of Google, they were kind of ignored by Wall Street investors, until it was time to go public,” said Chris Sacca, an angel investor in Silicon Valley who is a former Google employee and an investor in Twitter. “This time, the Street is smartening up. They realize there are true growth businesses out here. Facebook has become a real business, and investors are coming out here and saying, ‘We want a piece of it.’”

The Facebook investment deal is likely to stir up a debate about what the company would be worth in the public market. Though it does not disclose its financial performance, analysts estimate the company is profitable and could bring in as much as $2 billion in revenue annually.

Under the terms of the deal, Goldman has invested $450 million, and Digital Sky Technologies, a Russian investment firm that has already sunk about half a billion dollars into Facebook, invested $50 million, people involved in the talks said.

Goldman has the right to sell part of its stake, up to $75 million, to the Russian firm, these people said. For Digital Sky Technologies, the deal means its original investment in Facebook, at a valuation of $10 billion, has gone up fivefold.

Representatives for Facebook, Goldman and Digital Sky Technologies all declined to comment.

Goldman’s involvement means it may be in a strong position to take Facebook public when it decides to do so in what is likely to be a lucrative and prominent deal.

As part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation, people involved in the discussions said, speaking on the condition of anonymity because the transaction was not supposed to be made public until the fund-raising had been completed.

In a rare move, Goldman is planning to create a “special purpose vehicle” to allow its high-net worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman’s proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

It is unclear whether the S.E.C. will look favorably upon the arrangement.

Already, a thriving secondary market exists for shares of Facebook and other private Internet companies. In November, $40 million worth of Facebook shares changed hands in an auction on a private exchange called SecondMarket. According to SharesPost, Facebook’s value has roughly tripled over the last year, to $42.4 billion. Some investors appear to have bought Facebook shares at a price that implies a valuation of $56 billion. But the credibility of one of Wall Street’s largest names, Goldman, may help justify the company’s worth.

Facebook also surpassed Google as the most visited Web site in 2010, according to the Internet tracking firm Experian Hitwise.

Facebook received 8.9 percent of all Web visits in the United States between January and November 2010. Google’s main site was second with 7.2 percent, followed by Yahoo Mail service, Yahoo’s Web portal and YouTube, part of Google.

For Mr. Zuckerberg, the deal may double his personal fortune, which Forbes estimated at $6.9 billion when Facebook was valued at $23 billion. That would put him in a league with the founders of Google, Larry Page and Sergey Brin, who are reportedly worth $15 billion apiece.

Even as Goldman takes a stake in Facebook, its employees may struggle to view what they invested in. Like those at most major Wall Street firms, Goldman’s computers automatically block access to social networking sites, including Facebook.”

NetSpend IPO Skyrockets 20% – Prepaid Cards Serving the Underbanked

Wednesday, October 20th, 2010

NetSpend Skyrockets After IPO

Who would have thought that a prepaid card manufacturer could reach a $1.2 billion valuation?

IPO Details

On October 19th, NetSpend Holdings (NASDAQ: NTSP), a marketer and distributor of prepaid debit cards, was able to complete a successful $204 million initial public offering, rising over 18% in its first day of trading.  The IPO was one of the most successful of the summer.  Shares of NetSpend jumped to almost $14 on October 20th from their initial $11 IPO price.  The IPO proceeds were used by Oak Investment Partners to cut the investment firm’s stake in the company from 47% to 39%.

The company sold 18.5 million shares on the 19th, after pushing back the date of its debut due to the investigation of its customer Metabank by the U.S. Office of Thrift Supervision.   Competitor Green Dot Corp., the largest provider of prepaid debit cards has rallied 35% since July.  On the other hand, Meta Financial has fallen 60% since it was forced to shut down one of its credit card programs.

Valuation

According to Rolfe Winkler of the Wall Street Journal, investors were paying $550+ apiece for each share of NetSpend purchased through its IPO.  Netspend has an enterprise value (BEV) of about $1.2 billion, which implies a $590 valuation on its cards, whereas competitor Green Dot is valued at $630+ per card.   One reason for the high valuation may lie in the fact that pre-IPO investors cannot sell their stakes until April 2011.

Risks

The risk in investing in NetSpend lies in the fact that the company’s processing fees per card provide only $11 in revenue per month.  Marketing and distribution expenses are fairly high as well, and customers also only use cards for 1 year before cancelling.  Churn is a significant issue for the company.  This is why the company’s EBIT or operating margin is only about 15%.  Due to the emergence to competitors and market saturation, NetSpend’s growth has decelerated from 50% in 2006 to 20% in 2009.

Business Model

Since 2005, there have been a number of prepaid card providers that have emerged and have been targeting low income consumers underserved by banks.  NetSpend has about two million active cards and is the second largest player in the United States with 40% market share.  It attracts customers by promising no overdraft fees and minimum balances.  As more banks turn away from low income customers, there may be potential for continued growth in this market.  The company claims that $7.6 billion in transactions were made using its cards in 2009.

NetSpend cards are sold at 39,000 retail store locations and are used by 800 corporate employers who use NetSpend cards to pay employees without bank accounts.  The cards are also FDIC-insured and are Visa & Mastercard branded.

Market

Approximately 25% of households in the United States are underbanked, and are searching for alternatives to traditional bank accounts.  The industry has growth at a CAGR of 49% from 2005 to 2009 and has reached a market size of approximately $300 million.  The business is also scalable, with industry average EBITDA margins at 25%.

HCA Could Have $3 Billion IPO, 4 Years After KKR & Bain Buyout

Sunday, April 11th, 2010


Most recent bond prospectus for HCA…great read.

HCA Prospectus

Short video clip describing HCA IPO and roadshow process.

[youtube]http://www.youtube.com/watch?v=hZ9VUSmUoyo&feature=channel[/youtube]

Four years after its buyout, HCA, the largest hospital chain in the United States is preparing for an IPO that could raise as much as $3 billion for KKR and its investors.  HCA has over 160 hospitals and 105 outpatient-surgery clinics in 20 states and England.  The IPO would help the firm pay down some of its $26 billion in debt.  The company is very well positioned to benefit from health care reform.  According to Analysts, this specific IPO would be the largest in the U.S. since March 2008, when Visa Inc. raised almost $20 billion…A takeover of a public company of more than $6 billion including debt hasn’t been announced since 2007.  HCA has fared much better than other mega-buyouts from 2006/2007, and is only levered at 4.8x trailing EBITDA.

According to Bloomberg, “HCA Inc., the hospital chain bought four years ago in a $33 billion leveraged buyout led by KKR & Co. and Bain Capital LLC, is preparing an initial public offering that may raise $3 billion, said two people with knowledge of the matter.

HCA plans to interview banks to underwrite the sale in the coming weeks, according to the people, who asked not to be identified because the information isn’t public. The sale, slated for this year, may fetch $2.5 billion to $3 billion, the people said. HCA’s owners, which include Bank of America Corp. and Tennessee’s Frist family, may seek $4 billion, said another person familiar with the plans.

The stock offering would be the biggest U.S. IPO in two years and help HCA pay off debt, the people said. The hospital operator may profit from the health-care legislation President Barack Obama signed into law on March 23 that provides for coverage for millions of uninsured patients, said Sheryl Skolnick, an analyst at CRT Capital Group LLC in Stamford, Connecticut.

HCA is “extremely well-positioned to benefit from health reform because their hospitals tend to be concentrated in significant markets” including Denver, Dallas, Houston, Kansas City, Missouri, and Salt Lake City, Skolnick said yesterday in a telephone interview. “Health reform was very important to this decision.”

Kristi Huller, a spokeswoman for KKR, and Alex Stanton, a Bain spokesman, declined to comment, as did Jerry Dubrowski, a Bank of America spokesman. Ed Fishbough, a spokesman for HCA, didn’t immediately respond to a phone call and e-mail seeking comment.

Buyout Surge

Private-equity firms spent $2 trillion, most of it borrowed, to buy companies ranging from Hilton Hotels Corp. to Clear Channel Communications Inc. in the leveraged-buyout boom that ended in 2007 and are now seeking to cut that debt before it matures.

U.S. IPO investors have been leery of companies backed by private equity this year. In the biggest offering so far, Bain’s Sensata Technologies Holding NV sold $569 million of shares last month at the low end of its estimated price range. In February, Blackstone Group LP’s Graham Packaging Co. and CCMP Capital Advisors LLC’s Generac Holdings Inc. were forced to cut the size of their offerings.

HCA may file for the IPO with the U.S. Securities and Exchange Commission as early as next month, said one of the people.

The IPO would be the largest in the U.S. since March 2008, when Visa Inc. raised almost $20 billion. HCA would be the biggest IPO of a private-equity backed company in the U.S. since at least 2000, according to Greenwich, Connecticut-based Renaissance Capital LLC, which has followed IPOs since 1991.

Debt Load

HCA’s owners put up about $5.3 billion to buy the company, according to a regulatory filing, funding the rest with loans from banks including Bank of America, Merrill Lynch & Co., JPMorgan Chase & Co. and Citigroup Inc. The IPO would lower HCA’s debt load rather than allowing owners to reduce their stakes, said the people.

The hospital chain’s purchase in 2006 shattered the record for the largest leveraged buyout, held since 1989 by KKR’s acquisition of RJR Nabisco Inc. HCA’s record was eclipsed by Blackstone’s acquisition of Equity Office Properties Trust and again by the 2007 takeover of Energy Future Holdings Corp., by KKR and TPG Inc., for $43 billion including debt.

Later that year, the global credit contraction cut off the supply of loans necessary to arrange the largest LBOs. A takeover of a public company of more than $6 billion including debt hasn’t been announced since 2007.

$25.7 Billion Debt

HCA, the largest U.S. hospital operator, had about $25.7 billion of debt as of Dec. 31, about 4.8 times its earnings before interest, taxes, depreciation and amortization, even before HCA’s owners tapped credit lines in January to pay themselves a $1.75 billion dividend. Tenet Healthcare Corp.’s ratio was 4.4 and LifePoint Hospitals Inc.’s was 2.85 at year- end, according to data compiled by Bloomberg.

Health-care companies have fared better than the average private-equity investment during the economic decline. KKR said in February that its holding in the company had gained as much as 90 percent in value as of Dec. 31, while stakes in Energy Future Holdings Corp. and First Data Corp. were worth less than their initial cost.

Hospitals will probably be “net winners” in the health- care legislation, said Adam Feinstein, a New York-based analyst at Barclays Capital, in a March 26 note to investors. HCA, Dallas-based Tenet and Brentwood, Tennessee-based LifePoint may gain because the legislation will reduce hospitals’ losses from providing charity care to the poor and uncollectible bills.

Frist Family

HCA has 163 hospitals and 105 outpatient-surgery clinics in 20 states and England, according to the company’s Web site.

The company was founded in 1968, when Nashville physician Thomas Frist Sr., and his son, Thomas Frist Jr., and Jack Massey built a hospital there and formed Hospital Corp. of America. By 1987, the company had grown to operate 463 hospitals, according to the company’s Web site. Thomas Frist Sr. is also the father of Bill Frist, a physician and the former Senate majority leader.

HCA went private in a $5.1 billion leveraged buyout in 1989, then went public again in 1992, according to the company Web site. In 1994, HCA merged with Louisville, Kentucky-based Columbia Hospital Corp. In the mid-1990s the company, then called Columbia/HCA Healthcare Corp., operated 350 hospitals, 145 outpatient clinics and 550 home-care agencies, according to the company.

Overbilling Settlement

In December 2000, HCA agreed to pay $840 million in criminal and civil penalties to settle U.S. claims that it overbilled states and the federal government for health-care costs. It was the largest government fraud settlement in U.S. history at the time, according to a U.S. Justice Department news release on Dec. 14, 2000.

A credit-market rally has helped HCA extend maturities on some of its debt. HCA has sold $4.46 billion of bonds since February 2009 in a bid to repay bank debt and delay maturities, according to data compiled by Bloomberg. The company still has about $11 billion coming due over the next three years, according to Bloomberg data. It is also negotiating with lenders to amend the terms of a bank loan.

HCA offered earlier this month to pay an increased interest rate to lengthen maturities on $1 billion of bank debt, according to two people familiar with the matter. The amendment would allow HCA to move part of the money due under its term loan B to 2017 from 2013. Even after the refinancing and debt pay downs, the company will still have to access the “capital markets to address remaining maturities,” said Moody’s Investors Service Inc. in a note last month.

“It will be difficult for the company to meaningfully reduce the amount of debt outstanding through operations due to limited free cash flow generation,” Moody’s said.”

Here is an article from 4 years ago by the NY Times describing the mega-buyout:

“HCA, the nation’s largest for-profit hospital operator, said today that it had agreed to be acquired by consortium of private investors for about $21 billion. The investors will also take on about $11.7 billion of HCA’s debt.
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The overall deal, which the company valued at about $33 billion, would rank as the largest leveraged buyout in history, eclipsing the $31 billion takeover of RJR Nabisco in 1989 by Kohlberg Kravis Roberts & Company.

The group of buyers is led by the family of Senator Bill Frist, the Senate majority leader. His father, Thomas Frist Sr., and his brother, Thomas F. Frist Jr., founded HCA.

The other investors are Bain Capital, Kohlberg Kravis Roberts and the private equity arm of Merrill Lynch.

The deal appears to be driven by trends both on Wall Street and in the health care industry. For one thing, the private equity business — in which investment companies pool capital from investors in order to buy companies and then resell them or take them public — is swimming in cash. And private equity firms are eager to invest in a company like HCA, which generates a lot of revenue and, judging by its stock price, is seen as undervalued by investors.

Like many other for-profit hospital companies, HCA has seen its stock perform poorly in recent years. The whole industry has struggled with increasing amounts of bad debt, as more people fail to pay their bills because they do not have sufficient health insurance or any coverage.

Separately, various private equity firms have made a number of huge deals recently: Univision for $12.3 billion in June; $22 billion for Kinder Morgan in May; General Motors’ finance unit, GMAC, for as much as $14 billion in April.

Earlier this month, the Blackstone Group said it had lined up $15.6 billion in commitments for its latest buyout pool, forming the world’s largest private equity fund.

HCA was taken private once before, in the late 1980’s by the company’s management, which at the time thought it was undervalued. The move turned out to be a success, and HCA went public again a few years later.

Today’s deal promises to generate large fees for Wall Street bankers and lawyers, who have been toiling away on the transaction for months. Credit Suisse, Morgan Stanley and Shearman & Sterling are advising HCA; Merrill, Bank of America Corporation, Citigroup Inc., J. P. Morgan Chase and Simpson Thacher & Bartlett are financing and advising the buying group.

HCA is the nation’s largest for-profit hospital chain, with 2005 revenues of roughly $25 billion. Based in Nashville, Tenn., the company operates about 180 hospitals and nearly 100 surgery centers.

After merging with Columbia Hospital Corporation in 1994, HCA became the subject of a sweeping federal Medicare fraud investigation; it agreed to pay $1.7 billion to settle the matter. Thomas Frist Jr., who had left HCA’s management before the fraud charges arose, eventually returned as chief executive in 1997. He stepped down as chairman in 2002, but he remains on the company’s board of directors.

Senator Frist’s ties to the company have drawn criticism over the years, as he has been active in the Senate on a variety of health-care initiatives that have the potential to affect the large hospital company. Last fall, the Securities and Exchange Commission began an investigation into his decision to sell stock, once estimated to be worth more than $10 million, which was held in a trust.

Mr. Frist sold the stock in June 2005, just as the price of HCA stock peaked and shortly before it fell the following month; the sale was disclosed in September. He has said that the timing of the sale was a coincidence, the result of a decision to divest his holdings in the company, and that he is cooperating with the investigation.

Under the terms of today’s deal, the consortium of investors would pay $51 a share for HCA’s outstanding common stock, roughly 15 percent more than the company’s trading price early last week, when word spread that the negotiations had faltered. Today, HCA’s stock rose $1.61, or 3.4 percent, to close at $49.48 on the New York Stock Exchange.

The investor consortium is expected to borrow about $15 billion to finance the deal. But with the high-yield bond market tightening, raising that amount could be a challenge.

There is also the possibility that another group could emerge with a rival offer. HCA has included a provision in its deal with the investor consortium that allows it to actively seek a higher offer. Firms like the Blackstone Group and the Apollo Group, as well as rival hospital operators, could try to bid.”

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Pandit Getting Ready to IPO Sandy Weill’s Primerica

Tuesday, March 30th, 2010

Years after Sandy Weill built Citigroup, Vikram Pandit has been working day and night to divest all ancillary businesses in order to raise capital and pay back the U.S. government for one of the largest bailouts in history.  To date, Citigroup has already sold its Japanese brokerage, its commodities trading unit, and credit card assets.  The most recent divestiture/IPO  for Citi is its  insurance division, Primerica, the insurance company that Sandy Weill used to build Citigroup into the powerhouse it was in 2005/2006.  The IPO reflects improvements in the market.  There are 4 IPOs planned for this week. Primerica will be selling for a sharp discount of 7x PE compared to other insurers, which trade at about 9x P/E.  Warburg Pincus will be purchasing about 30% of the IPO with warrants to purchase more shares in the future.  The division has 100,000 representatives selling financial services to households with $30,000 to $100,000 in annual income.  It earned $495 million in 2009, almost 3x as much in 2008.  Primerica will trade under the symbol “PRI.”

According to Michael Tsang & Craig Crudell of Bloomberg, “Primerica Inc., the insurance business that Sanford I. “Sandy” Weill used to build Citigroup Inc., is selling shares in an initial public offering at a discount to its competitors.

Primerica plans to raise $252 million tomorrow, a filing with the Securities and Exchange Commission and Bloomberg data showed. At the middle of its price range, the Duluth, Georgia- based distributor of consumer-finance products from term-life insurance to mutual funds would be valued at 6.74 times earnings after accounting for its planned reorganization. That’s 29 percent less than the median for U.S. life and health-insurance providers, data compiled by Bloomberg show.

Citigroup Chief Executive Officer Vikram Pandit is dismantling the company Weill built spending about $50 billion on Travelers Corp., Salomon Inc. and Citicorp during the 1990s to offer everything from insurance to stock broking and branch banking. The sale comes after the Standard & Poor’s 500 Index’s rally to an 18-month high spurred a rebound in the IPO market.

“The Primerica deal reflects a shift from the financial supermarket model, where instead of being good at a lot of things, a company like Citigroup ended up being mediocre at everything,” said James Dailey, who oversees $140 million as chief investment officer at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “Primerica could fetch a reasonable price. It’s been around a long time, its brand is established.”

Primerica is one of four U.S. companies scheduled to sell shares through initial offerings this week.

IPO Rebound

All five IPOs since March 15 have priced within or above their forecast range as the S&P 500 extended a rebound from its 2010 low on Feb. 8 to 11 percent. The previous 14 deals since the start of the year had been cut by 24 percent on average, data compiled by Bloomberg show.

Carlyle Group’s Windsor, Connecticut-based SS&C Technologies Holdings Inc., which sells trading and investment management software to the financial industry, and Meru Networks Inc. of Sunnyvale, California, which makes Wi-Fi networking equipment, are scheduled to price their IPOs today. Carlyle, the Washington-based buyout firm that oversees $89 billion, won’t sell SS&C shares in the $161 million offering.

Tengion Inc., the East Norriton, Pennsylvania-based company trying to grow replacement organs and tissues, is also set to hold its IPO this week, according to Bloomberg data.

Primerica, which has 100,000 representatives selling financial services to households with $30,000 to $100,000 in annual income, earned $495 million in 2009, an almost threefold increase from a year earlier.

Relative Value

Net income rebounded after declining 72 percent in 2008, when Primerica wrote down some of its goodwill, or the amount paid above the net asset value in an acquisition.

As part of its reorganization, Primerica will transfer 80 percent to 90 percent of the “risk and rewards” from the life insurance policies that it sold and distribute $622 million in assets to Citigroup before the IPO, according to the filing. That includes a $454 million one-time dividend to Citigroup.

At the middle of its $12 to $14 price range, the company is valued at 6.74 times its 2009 per-share income of $1.93, after taking into account a decrease in revenue and profit that would have taken place if the reorganization occurred on Jan. 1, 2009, according to its filing and data compiled by Bloomberg.

That’s less than the median 9.52 times price-earnings ratio for 23 publicly-traded U.S. life and health-insurance providers, Bloomberg data show.

Prudential, Ameriprise

Prudential Financial Inc. of Newark, New Jersey, the second-largest life insurer, and Ameriprise Financial Inc., the Minneapolis-based financial planning and services firm, command higher valuations, data compiled by Bloomberg show. Primerica lists the two companies among its biggest competitors.

Buyers of Primerica’s IPO will own 24 percent of the insurance firm after the offering.

They will also be investing alongside New York-based Warburg Pincus LLC, which oversees $30 billion. The private- equity firm agreed to buy 17.2 million shares, or a 23 percent stake, in a private sale at the IPO midpoint price, and warrants to purchase 4.3 million shares at a 20 percent premium. Warburg’s stake may increase to 33 percent if the firm exercises its right to buy additional shares from Citigroup.

“It’s a ‘fire sale’ by Citi,” Francis Gaskins, president of IPOdesktop.com in Marina del Rey, California, said in an e- mail. Also, “the IPO investor can get in on the same terms as Warburg. There appears little, if any, risk in this IPO at $13.”

Credit Markets

All proceeds will go to New York-based Citigroup, which is serving as the lead underwriter for the sale. Primerica is part of Citi Holdings, the collection of businesses that Citigroup’s Pandit said he would sell, wind down or restructure.

Pandit is dismantling Weill’s empire after loans and investments tied to the U.S. subprime mortgage market led to $47.6 billion in losses since the last quarter of 2007. Citigroup took a taxpayer-funded bailout after the credit markets froze, Lehman Brothers Holdings Inc. collapsed and Bear Stearns Cos. and Merrill Lynch & Co. were forced to sell themselves. All three companies were based in New York.

Weill used Primerica to build Citigroup through a series of acquisitions. In 1992, Primerica bought a 27 percent stake in Travelers, then took over the company a year later for $3.3 billion, keeping Travelers’ name and umbrella logo.

The company acquired Salomon in 1997 and in 1998 merged with Citicorp in a $37.4 billion deal to create Citigroup.

“This provides an important message that Citi is prepared to shed assets which clearly do not fit the current strategy, even if they have well-known brands,” said Richard Staite, a London-based analyst who covers financial institutions at Atlantic Equities LLP. “It’s a high-profile sale.””

According to Reuters, “Few other financial services companies cater to Primerica’s niche– lower-middle-class and middle-class families. And the offering’s valuation is relatively low compared to other life insurance companies.

Private equity firm Warburg Pincus will buy up to a third of the company, which is a vote of confidence in the business, analysts said.

“Warburg Pincus has put this thing together and they expect to make money. If people buy at the IPO price they’ll be buying right along with Warburg’s price,” said IPOdesktop.com President Francis Gaskins said on Friday.

There are definitely risks in buying Primerica shares. Primerica will not keep any of the proceeds from the offering, so the funds will not bolster the insurer.

Citi, which is leading the underwriters, is taking the IPO proceeds, and has taken substantial funds out of the business through dividends in recent years– nearly $1 billion since 2007. The bank will take another $622 million in dividends before the completion of the IPO, according to its prospectus. Those are funds that Primerica will not be able to invest in its growth.

“When there is a spinoff generally the parent extracts its pound of flesh, which is certainly the case here,” said Linda Killian, a portfolio manager with Connecticut-based Renaissance Capital.

But Primerica can still grow at a healthy clip, Killian said.

“The company is a very sales-oriented company that focuses on the really middle income America that doesn’t get a whole lot of financial services help from some of the larger companies that tend to focus on higher net worth individuals,” Killian said.

Most of the risk — and profit — from life insurance policies that Primerica has sold in recent years will be ceded to Citigroup, but Killian estimates that Primerica could replenish its book in as short a period as four to five years.

Primerica posted net income of about $495 million and revenue of $2.2 billion in 2009.

The group the firm serves is underinsured and needs to boost its investments, especially coming out of the financial crisis, said Clark Troy, a senior analyst at Aite Group.

The shock from the crisis has revealed to consumers that they might not be as well-prepared for retirement and other major milestones as they ought to be, Troy said. Middle class consumers may find Primerica’s pitch persuasive, he added.

“Its a financial product that can be priced attractively and give (the consumer) a lot of comfort,” Troy said.

After the IPO Citi will own 32 to 46 percent of the stock and private equity investor Warburg Pincus LLC [WP.UL] will own 23 to 33 percent of the stock.

In a separate, private deal Warburg Pincus has agreed to buy about 17.2 million shares, and warrants to buy another 4.3 million shares at 120 percent of the IPO price, assuming Citigroup meets certain conditions. Warburg also has the right to buy up to another $100 million worth of shares at the IPO price.

Citi, which accepted $45 billion worth of U.S. government bailout funds, has not made a secret about wanting to divest itself entirely of Primerica. But that is because Primerica is not part of its main banking business, and does not mean the unit is a bad business

If Primerica PRI.N prices at the midpoint of the expected range it will have a price to book value of 0.7. By comparison Ameriprise Financial Inc (AMP.N) and Prudential Financial Inc (PRU.N) are over 1, said IPOdesktop.com’s Gaskins.”

Dai-ichi Life Insurance Raises $11 Billion in Largest International IPO!

Tuesday, March 23rd, 2010

The equity markets having been roaring back in March, and equity underwriting has followed.  The largest global IPO was filed this week as Daiichi Mutual Fund Insurance filed an $11 billion IPO.  The last IPO of this size was the Visa IPO, which was $19.7 billion in March of 2008.  Daiichi stock was issued at a discount at 140,000 yen, instead of 155,000, ensuring a steady upward trend.  The stock is more expensive than T&D holdings, but less expensive than Soniy Financial Holdings.  Daiichi will use these proceeds to make acquisitions abroad.

According to Mr. Yamakazi of Bloomberg, “Dai-ichi Mutual Life Insurance Co. will raise 1.01 trillion yen ($11 billion) in the world’s biggest initial public offering in two years after pricing the IPO at the middle of its forecast range.

Japan’s second-largest life insurer priced 7.2 million shares in the demutualization at 140,000 yen each, according to a statement posted on the company’s Web site yesterday.

The offering is the largest since San Francisco-based Visa Inc. sold $19.7 billion in March 2008 and comes after money raised from IPOs in Japan fell to the lowest level in at least two decades last year. The price may ensure that Dai-ichi gains when it’s listed on the Tokyo Stock Exchange April 1, according to Ichiyoshi Investment Management Co.’s Mitsushige Akino.

“Most Japanese investors probably expected it to be 155,000 yen so it’s quite cheap,” said Akino, who oversees $450 million as chief investment officer of Ichiyoshi in Tokyo. “It’s the best scenario, where the price will rise bit by bit, rather than a short-lived popularity.”

The IPO by Dai-ichi, which will change its name to Dai-ichi Life Insurance Co., is also the biggest in Japan since Tokyo- based NTT DoCoMo Inc. went public in 1998, Bloomberg data show.

Dai-ichi’s market capitalization will be equal to 0.56 times embedded value, or the sum of its net assets and the current value of future profits from existing policies. That’s more expensive than T&D Holdings Inc., Japan’s largest publicly listed life insurer, and cheaper than Sony Financial Holdings Inc., the insurance and banking unit of Tokyo-based Sony Corp., data compiled by Bloomberg show.

‘Reasonable’

“The pricing seems reasonable,” said Yoshihiro Ito, a senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $8 billion. “The question is how well it will do the on the first day of trading, given the prospect for life insurers in Japan.”

Dai-ichi is switching from mutual to stock-based ownership to expand fundraising options for acquisitions and partnerships as it grapples with an aging society and the slowest-growing economy in Asia.

Nomura Holdings Inc. and Mizuho Financial Group Inc. in Tokyo and Charlotte, North Carolina-based Bank of America Corp.’s Merrill Lynch unit were hired to manage the offering. New York-based Goldman Sachs Group Inc. was a global arranger.

Overallotment

Dai-ichi will have 10 million shares outstanding, 5 million of which were sold in Japan and 2.1 million overseas, according to the statement. The Tokyo-based company will issue 100,000 shares in an overallotment and another 2.9 million will be distributed to policyholders.

T&D Holdings of Tokyo has a market capitalization of 684.9 billion yen, or 0.47 times its embedded value, based on a sale document distributed by banks involved with the Dai-ichi offering. Tokyo-based Sony Financial has a ratio of 0.84.

Prudential Plc of London, the U.K.’s biggest insurer, paid 1.69 times the embedded value of New York-based American International Group Inc.’s Asian life insurance unit in its takeover announced this month.

Japanese companies had raised $490 million yen in six IPOs so far this year, compared with 15 U.S. deals totalling almost $3 billion, data compiled by Bloomberg show.

The Dai-ichi deal will make this year the biggest for Japanese IPOs since 2006, when companies raised 2.14 trillion yen, Bloomberg data show. Sales sank to 56 billion yen last year as the collapse of New York-based Lehman Brothers Holdings Inc. froze credit markets and the Topix index posted the worst performance in the world’s 20 biggest equity markets.

Acquisitions

Dai-ichi, which had 8.2 million policyholders as of March 2009, will use proceeds of the sale to convert to stock-based ownership from policy-based mutual ownership. The switch will expand fundraising options for acquisitions and partnerships as the population declines, the company told policyholders in June.

Japan’s life insurers are struggling for new customers after the first global recession since World War II. The nation’s economy will grow less than 2 percent annually through at least 2012 after contracting 1.2 percent in 2008 and 5.2 percent last year, estimates compiled by Bloomberg show.

That compares with growth of 9.6 percent projected for China this year, while gross domestic product in the U.S. will rise at least 3 percent annually from 2010 to 2012, the estimates show.

Almost 23 percent of Japan’s 126 million people will be older than 65 this year, compared with 13 percent in the U.S., data compiled by Bloomberg show. Japan is the world’s oldest society, with a median age of 44, according to the United Nations’ World Population Ageing 2009 report.”

Phillips Van Heusen Buys Tommy Hilfiger for $3 billion in Cash & Stock Deal, Securing Great Returns for Apax Private Equity

Tuesday, March 16th, 2010

PVH’s acquisition of Tommy Hilfiger is a great transaction for a solid brand at 8x trailing EBITDA.  Apax, the owner of Tommy Hilfiger since its $1.6 billion buyout in 2006 will make 4.5x on its investment, one of the most successful private equity exits seen this year, especially for a company purchased in 2006.

According to Ms. Skariachan of Reuters, Phillips-Van Heusen (PVH.N), owner of the Calvin Klein label, agreed to buy fashion brand Tommy Hilfiger from London-based Apax Partners APAX.UL in a $3 billion cash-and-stock deal to boost its presence in Europe and Asia.

The deal would make Phillips-Van Heusen one of the largest suppliers of menswear to U.S. department stores, and will keep Hilfiger founder Tommy Hilfiger in his role as principal designer for the clothing line.

It also will add yet another high-profile name to PVH’s lineup, home to Izod and Calvin Klein. PVH also distributes menswear under labels such as Kenneth Cole New York, Michael Kors, Donald Trump and DKNY.

News of the deal boosted Phillips-Van Heusen’s shares about 10 percent, although both Moody’s Investors Service and Standard & Poor’s said they may cut their ratings on the company, citing the debt it will take on to fund the deal.

The deal would mark an end to London-based private equity firm Apax’s plans for an initial public offering for the iconic brand which it had bought in 2006 for $1.6 billion.

Private equity firms have been increasingly able to exit investments as the economy and markets have stabilized. Taking companies public has been more problematic.

Apax made 4.5 times its investment on the deal and will hold about 7 percent of the stock in PVH after the deal, a source familiar with the situation said.

“The deal certainly makes sense and that can be seen from PVH’s share price. A lot of people out there see that although it is quite a costly acquisition, they are still getting it at quite a low price,” IBISWorld analyst Toon van Beeck said.

At an estimated valuation of 8 times trailing earnings before interest, taxes, depreciation and amortization, “the price seems reasonable and the deal makes strategic sense to us,” Morningstar said in a research note for investors.

Tommy Hilfiger has spent the last few years trying to undo the damage from shifting its focus to a more mainstream group of buyers. It suffered years of sales declines after its logo-heavy designs helped make it a staple of urban streetwear, but alienated more affluent customers. Now, the company is expanding more quickly abroad than in the United States.

“It’s an opportunity to really revamp Tommy Hilfiger, which was such an iconic brand in the 90s and has somewhat died,” van Beeck said.

“I don’t think Apax Partners did enough with the brand, but Van Heusen is more familiar with menswear,” said Donna Reamy, associate professor at the department of fashion design and merchandising at Virginia Commonwealth University in Richmond.

Hilfiger CEO Fred Gehring said the PVH deal makes sense despite Apax’s earlier plans to take Hilfiger public.

“When you have a strategic sale, the norm often is you also lose a little bit of your identity in the process. PVH on the other hand in the transaction with Calvin Klein seven years ago has demonstrated how it can be done differently,” Gehring told Reuters in an interview.

Gehring will remain as chief executive, join the PVH board and take on international operations for PVH.

PVH expects the deal to boost earnings by 20 cents to 25 cents a share, excluding items, in the current fiscal year.

It also said the deal would add 75 cents a share to $1 a share in the next fiscal year, ending January 29, 2012.

Private investment firm Blue Harbour Group, which owns about 1.5 million Phillips-Van Heusen shares, said it was “very supportive” of the deal.

There is “potential for the stock to move further up from the move we’ve seen today,” said Michael James, a senior trader at Wedbush Morgan in Los Angeles.

FAIR PRICE

Phillips-Van Heusen will pay $2.6 billion in cash and $380 million in common stock for Tommy Hilfiger.

Phillips-Van Heusen expects to use $3.05 billion in debt, $385 million in cash, $200 million in preferred stock and $200 million from a common stock offering to finance the deal and refinance other debt.

The company is paying “a very fair price for such a powerful brand,” PVH Chief Executive Emanuel Chirico told Reuters in an interview. It expects $300 million in annual cash flow, and plans to pay off $200 million in debt in 2011.

The deal would not alter PVH’s relationships with its other brands and licenses, he said.

The company sees annual cost savings of $40 million from the deal and expects to close it in the second quarter.

According to Bloomberg, “the purchase will accelerate revenue growth  to as much as 8 percent, helped by Amsterdam-based Tommy Hilfiger’s European operations, Phillips-Van Heusen Chairman and Chief Executive Officer Emanuel Chirico, 52, said in an interview today. About two-thirds of Tommy Hilfiger’s revenue comes from outside the U.S. The combined company will have annual sales of $4.6 billion.

“PVH could extend some of their brands into Europe,” Chris Kim, an analyst at JPMorgan Chase & Co. in New York, said in a telephone interview. “In the domestic market, PVH has better expertise in the mass channel and the department-store sphere, and would help them manage better the Tommy Hilfiger brand.”

Adds to Earnings

The proposed acquisition is the biggest announced by a U.S. clothing retailer or manufacturer in the past 10 years, according to data compiled by Bloomberg. It’s also the eighth- biggest announced by any U.S. company this year, the data show.

Tommy Hilfiger will add as much as 25 cents a share to Phillips-Van Heusen’s 2010 earnings and as much as $1 next year, excluding one-time costs to finance the deal and integrate the companies, according to the statement. Phillips-Van Heusen’s revenue grew 2.8 percent in the year ended Feb. 1, 2009.

Phillips-Van Heusen rose $4.66, or 9.8 percent, to $52.40 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest gain in almost a year. The shares have risen 29 percent this year, giving the company a market value of about $2.7 billion, less than what it’s paying for Tommy Hilfiger.

Phillips-Van Heusen plans to sell its Arrow and Izod brands in Europe, probably through department stores, Chirico and Tommy Hilfiger CEO Fred Gehring said in the interview today. The company will expand existing Tommy Hilfiger categories at Macy’s Inc. — the exclusive department-store seller of Tommy Hilfiger sportswear — and add new ones, the executives said.

Macy’s Sales

Phillips-Van Heusen sells $300 million of its goods at Macy’s, the second-largest U.S. department-store chain, and Tommy Hilfiger sells $200 million, Chirico said.

“The Tommy acquisition really fits all our strategic targets for an acquisition,” Chirico said. “It’s a very strong global brand, with a strong international platform, that will be immediately accretive to earnings.”

Tommy Hilfiger first sold shares in 1992 and increased annual revenue to almost $2 billion in 2000 after its American- themed red-white-and-blue-splashed clothing became popular internationally. It now has 1,000 namesake stores worldwide.

The company was started in 1985 by its Elmira, New York- born namesake designer. Hilfiger, who opened a boutique while still a high-school student, will remain the principal designer, Phillips-Van Heusen said. Gehring will stay on as Tommy Hilfiger chief executive officer.

Deal Financing

Phillips-Van Heusen plans to sell shares worth $200 million to help pay for the takeover, issuing about 8.7 million, or 13 percent of its outstanding stock, to Apax and other Tommy Hilfiger shareholders. The company said it plans to get $2.45 billion of senior secured debt, including undrawn revolving credit of $450 million, $600 million of senior unsecured notes and $200 million in preferred stock, and about $385 million of cash to fund the deal and refinance $300 million of bonds.

Barclays Capital and Deutsche Bank AG are global debt coordinators for the transactions, according to the statement.

Phillips-Van Heusen’s bid values Tommy Hilfiger at 1.3 times sales and 10.7 times earnings before interest and taxes, known as Ebit. Tommy Hilfiger revenue in the year ending March 31 may total $2.25 billion, about 34 percent of that in U.S. markets, and Ebit will come in at $280 million, according to the statement.

Peter J. Solomon Co is the lead financial adviser to PVH. Barclays Capital, Deutsche Bank, Bank of America Merrill Lynch, and RBC Capital Markets also acted as financial advisers and will arrange financing for the deal.

Credit Suisse acted as lead financial adviser to the Tommy Hilfiger Group and as sole adviser to Apax Partners.”

Bain’s Sensata Could Spark $600mm IPO

Monday, March 8th, 2010

Bain Capital is offering to IPO Sensata Technologies for $632 million, 3x the original investment.  Interestingly enough, Sensata has been a money losing company every year since the investment.  Sensata’s revenue fell 20% last year and interest obligations were $151 million.  Bain acquired Sensata for $3 billion in a leveraged buyout in 1984.  The PE firm used $2.1 billion in debt and $985 million in equity to fund the buyout.

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Sensata manufacturers sensors for Ford Motor Co. and controls for Samsung.  It plans to offer 31.5 million shares at about $20 each, an 18% stake.  It will receive about 83% of the proceeds of the IPO before fees and expenses, $352 million of which will be used to pay down debt.  This would bring down down to $1.94 billion and increase cash to $232.6  million.  About $22.1 million in fees will go to Bain & Co.

This will bring Sensata’s Enterprise Value (BEV) to $4.96 billion or 13.5x EBITDA of $367 million.  The multiple is 66% higher than companies in the same industry (instruments & controls).  Its next largest competitor is the Japanese Denso Corp., which trades at 10.4x EBITDA.

This will be a very difficult IPO to pull through, after Blackstone cut its IPO for Graham Packaging by 55% a few weeks ago.

For more information, check out the source: Bloomberg

For more information, check out Sensata on the web