CVC gets bullish with IG Group

The £225m IPO of spread-betting firm IG Group will close this week and is expected to record a strong finish following a good take-up. Bankers said at the end of last week that the deal was already covered, and that the management roadshows had been particularly well received.

There has been some comment that accounts are being fairly aggressive on price, fully aware that selling shareholder CVC, which currently owns 84%, will also be pushing for the highest price possible.

Bookrunner UBS is marketing the deal with a price range of 112p–139p, which equates to a P/E multiple range of 14.2–16.4 for the year ending May 2006. The company is raising £124m through the primary element of the IPO, with around £100m of secondary shares coming from CVC and management.

The company had been widely expected to gain a market capitalisation of £375m to £400m, but the price range of 112p to 139p per share suggests a maximum valuation of £435m. The company began roadshows on Wednesday April 13, with the release of the price range.

Interest was also driven by the unique position of the company, which straddles both the gaming and financial sectors. As a result, IG Group lacks clear comparables, with investors looking at traditional gaming companies, online gaming companies, including Sportingbet, and financials such as interdealer broker ICAP.

Most investors are attracted by the potential for growth and the scalability of the internet platform. However, the top half of the range has been viewed as a return to venture capital firms pushing unreasonable valuations on the market, and the offer is therefore deemed likely to price in the lower half.

Unlike gaming companies, IG Group operates under the stewardship of the Financial Services Authority and is required to maintain a certain level of regulatory capital. This requirement has led the company to set the primary portion of the deal to raise £124m net of expenses, and the number of shares to be issued is, therefore, dependent on the price range.

The secondary tranche will see CVC reduce its 84% holding by around half and management would sell approximately a quarter of their holdings, taking them down to 12% if the offer were to price in the middle of the range. The middle of the range would see an offer of 179m shares and a total deal size of £224.6m, leading to a free float of 55%.

CVC is subject to a six-month lock-up, while management has a phased lock-up so they can sell up to half their holdings from July 2006 and are totally released from restrictions a year later.