When IPO gurus predicted this year’s market would open up to a broad array of sectors, they hit the nail on the head. Investors can now chalk up a payroll service provider among companies that want a shot at becoming a new issue this year, and Willis Stein & Partners’ Advantage Payroll Services Inc may be the guinea pig.
Advantage Payroll Services filed to go public in March in a deal aimed at raising as much as $143.7 million. Lead managed by Lehman Brothers, the IPO will use proceeds for repayment of bank debt – approximately $28.6 million will be dedicated to its acquisition line of credit, $6.9 million will go toward its term loan with a Feb. 10, 2003, maturity date and $4 million will be applied to its revolving credit facility. CIBC World Markets and Wachovia Securities are also on the syndicate. Future acquisitions were also noted in the S-1 as a potential use of proceeds, though nothing specific was mentioned. Share amount and price range have not yet been released.
Founded in 1967, Advantage certainly fits into the traditional sector category, which has been the mainstay of the 2002 market. The Auburn, Maine-based company offers outsourced payroll services for small- to mid-sized businesses, in addition to human resource and employee benefit services. It appears to be well diversified, with clients across all 50 states – 44,500 as of February – and was quick to point out in the S-1 that no one client accounted for more than 0.4% of its revenue for payroll services.
Although an old economy sector, according to its balance sheets, Advantage has been unprofitable since 1999. For the year ended May 25,2001, the company tallied revenue of $50.09 million and a loss of $5.42 million. In 2000, the company recorded $35.73 million in revenue, and a net loss of $4.40 million.
The balance sheets do indicate a turn in fortune for Advantage from mid-2001 through early this year. However, it’s important to note the positive outlook is derived from pro forma figures, which are not calculated under Generally Accepted Acounting Principles. For the nine months ended Feb. 22, 2002, Advantage’s pro forma sheet claimed $52.3 million in revenue and a net income of $2.81 million.
Since 1998, Advantage has been majority-owned by Willis Stein & Partners. The private equity firm owns 64% or 7.7785 million shares, and New England Business Service, the company’s second largest shareholder, owns 19.7% or 2.460 million shares. Advantage’s CEO, Charles W. Lathrop Jr., holds 5.7% or 701,861 shares.
Some of the company’s net loss was attributed to interest costs related to funds borrowed for the buyout and due to the fact that the company shifted to a direct salesforce model after its buyout.