Private equity shareholders in Paris-based satellite company Eutelsat have scrapped plans for a secondary placing, wiping out a share in a payment of up to €827m for themselves and their investors.
Eurazeo, Spectrum Equity, Texas Pacific, Cinven and Goldman Sachs shelved the secondary offering earlier this week – apart from the greenshoe option – after the company announced that it was cutting the price range for the IPO by 20%.
The €860m primary portion of the deal remains in place through bookrunners Deutsche, Goldman, Lehman, Merrill Lynch and Morgan Stanley, but the size of the overall deal has been slashed from up to €1.8bn.
Eutelsat was forced to cut the price range for its flotation from €15.25-€17.75 to €12.00-€13.80. A week earlier, GIMV-backed cable company Telenet opted not to revise the range on its IPO, but has seen its shares fall by more than 17% since the start of trading on October 11.
Prior to the change, Eutelsat was slated to sell 56.4m primary shares, with that portion capped at €860m for debt reduction. Shareholders were also planning to sell 21.5m shares in the base deal, while others had an option to sell a further 11.7m shares. Of these plans, only the greenshoe of 13.4m shares remains in place.
These results show that market conditions and investor resistance have caught up with European IPOs and are a cause of concern for the venture-backed pipeline. Rising inflation and interest rates are making the stock market less competitive and thus less attractive for private equity sellers.
Investors said that in the current environment they are either looking for exceptional bargains or very specialist high-growth stories. Eutelsat offered neither of these: since the start of bookbuilding there have been comments that the company might be a tough sell in comparison with its peer, SES Global.
“This is the time of year when many of us are looking to pull back and take profits anyway, and with market conditions now very poor indeed we are looking at bargains or very interesting growth stocks,” said an investor still contemplating buying into the Eutelsat IPO.
Even before Tuesday’s announcement, it was fairly clear that Eutelsat was running into trouble on valuation, particularly with the CAC 40 falling 3% since books opened on October 11 and 5% since the beginning of October. SES has also fallen by 5% during Eutelsat’s bookbuilding.
The original range put Eutelsat at a 2006 EV/Ebitda range of around 9x-9.7x, encompassing SES’s 2006 multiple of 9.5x at the time. With SES now at around 8.7x-8.8x for next year, the new range puts Eutelsat at around 8.2x-8.7x. Investors said that they consider SES to be the more appealing from a growth perspective and that fair value for Eutelsat should be below SES – before any IPO discount.
Other bankers said that Eutelsat was simply suffering from a “Telenet effect”, arguing that if Telenet had traded up after its IPO then there would have been few questions asked about the Eutelsat valuation.
“It is inevitable that when the markets begin to get a little edgy, as they are now, then fund managers are going to be asking for that extra margin of security,” said one head of syndicate who was involved in Telenet.