IPO of Bureau Veritas under way

This flows over to p.23

The IPO for French certification company Bureau Veritas finally got under way yesterday with a bookbuilding range that values the Wendel-owned company at €3.5bn–€4.1bn.

The IPO by the Paris-listed private equity group which owns circa 98% of the company could raise up to €1.2bn, beating this year’s biggest private equity backed IPO to-date – the €1bn flotation of Rexel, the electrical retailer owned by Eurazeo, Clayton Dubilier and Rice, and Merrill Lynch Private Equity.

Lead managers BNP Paribas, Deutsche Bank, Goldman Sachs, HSBC and SG will price the transaction on October 23, with trading scheduled for the following day.

A base deal of 24.8m shares is on offer, of which 24m come from Wendel and 800,000 from the company’s management. An additional 3.4m-share extension clause and 4.3m-share greenshoe, both from Wendel, will result in a 27% free-float, while Wendel’s stake will fall to about 56% from 98.3% due to the additional impact of share options that will see employees hold 8% with a further 8% representing treasury shares.

At €32.50–€37.75, the price range represents a discount to Swiss peer SGS, which most analysts view as a closer comparable than Intertek in the UK. On an EV/Ebitda basis, Bureau Veritas’ valuation represents an 11% discount to SGS at the bottom of the range and comes in line at the top. On a P/E basis, the range offers a bigger discount to SGS, 17% at the bottom and 3% at the top.

Some view the float as a departure from Wendel’s previous strategy of investing purely in non-quoted companies. However, one source close to the deal said: “Wendel has historically invested in non-quoted companies and this has stood it in good stead, but more than that its basic strategy has always been opportunistic and I suspect as its spending power got bigger it has had to look at bigger opportunities and other ways of spending and making money.”

Bureau Veritas is Wendel’s largest asset, representing more than 50% of the investment company’s net asset value. Wendel’s decision to float its largest holding comes ahead of an expected consolidation in the testing and certification sector.

The sector has recently witnessed a flood of small-scale acquisitions, but a large tie-up between two of the three main players, Bureau Veritas, SGS and Intertek, is expected in the near future.

Given its expected market cap of up to €4.1bn post-flotation, Bureau Veritas could emerge as either an acquirer or target. SGS is one of the largest players in the sector with a market cap of around €6.7bn, while Intertek in the UK has a market cap of just €2.2bn.

By maintaining a majority stake in the company post-flotation, Wendel will benefit from possible M&A-driven upside in the stock in the event of an acquisition by SGS, or will be left with a sizeable stake in a market leader in the event of a merger between the two.

In late 2006, SGS replaced former CEO Dan Kerpelman with Chris Kirk, assigning him the task of accelerating the company’s acquisition plans. Although there have been no formal discussions regarding a tie-up with Bureau Veritas, SGS has noted its interest in the French company.

BNPP analysts believe that a merger between the two companies could create an entity with a 12% market share and generate cost synergies of 13% of combined Ebit.

Wendel began investing in Bureau Veritas in 1995 and finally acquired a 32% stake in the company from Poincare Investments in 2004 for €660m, valuing the company at €2.1bn.

Helen Bartholomew, Sandrine Bradley