Carlyle, Onex Reap $600M In Allison IPO

Target: Allison Transmission Holdings

Price: $600.3 million

Market cap: $4.5 billion

Sponsors: The Carlyle Group and Onex Corp.

Underwriters: Bank of America Merrill Lynch, Citigroup Inc., JPMorgan

Allison Transmission Holdings sold more shares than expected in a $600.3 million initial public offering that priced within its expected range, sister news service Reuters reported. The Indianapolis-based maker of automatic transmissions for trucks, buses and military vehicles sold 26.1 million shares at $23 apiece, versus estimates for 21.7 million shares at a range of $22 to $24.

Allison closed its books a day ahead of schedule due to strong demand, according to two underwriters. Shares closed slightly higher in their first day of trading. The IPO gives the company a market capitalization of $4.5 billion. “I was surprised to see them add 5 million more shares last night because that’s usually only done when the deal is red-hot,” said Scott Sweet, managing partner with IPO Boutique. “This deal was never red-hot.”

Allison was sold by General Motors to buyout firms The Carlyle Group and Onex Corp. in 2007 for $5.6 billion. It holds a 62 percent market share of the global market for medium and heavy duty commercial vehicles. In 2011, Allison’s earnings topped $103 million, compared with a profit of $30 million in the prior year. Net sales grew 12 percent to $2.2 billion.

It will pay a dividend of 6 cents a share beginning in the second quarter. Carlyle and Onex sold all of the shares in the IPO, and Allison did not receive any proceeds. Each firm will hold a 43 percent stake in Allison after the offering.

Allison’s offering could pave the way for other auto parts manufacturers to go public. Electric motor maker Remy International filed for an IPO of up to $100 million in March 2011, while Affinia filed for a $230 million offering in June 2010.

Much of Allison’s growth has come from an industry-wide rebound in truck sales. North American truck production last year increased by 54 percent from a low in 2009, Allison said in its registration statement, citing ACT Research. But this growth could drop to 3.1 percent from 2013 to 2014, according to ACT.

“I’m a little less optimistic about truck sales for the next few years,” said Basili Alukos, an analyst at Morningstar. “The industry has already improved so substantially.”

Allison’s offering comes as private equity firms seek ways to sell their portfolio companies after being unable to exit their investments in 2011 due to economic concerns. Last year, 30 private equity-backed companies went public, compared to 40 in the prior year, according to PitchBook. Many large sponsor-backed companies are still in the IPO pipeline, including Toys R Us, telecom equipment company Avaya and theater operator AMC Entertainment.

Underwriters on Allison Transmission’s IPO include Bank of America Merrill Lynch, Citigroup Inc. and JPMorgan. The company plans to list on the New York Stock Exchange under the ticker “ALSN”.

(Olivia Oran is a journalist for Reuters in New York.)