KKR sets valuation for MTU

The IPO of MTU Aero Engines began pre-marketing last week, with private equity owner Kohlberg Kravis Roberts (KKR) setting a price range that valued the business at up to €1.2bn.

The range is €19–€22 per share. The company is selling 15m new shares to raise up to €330m, while KKR will sell 16m shares in the base deal to raise up to €352m. There is a greenshoe of a further 4.65m shares from KKR. The IPO comes just 18 months after KKR bought MTU from DaimlerChrysler. Deutsche Bank, Goldman Sachs and UBS are joint bookrunners.

The valuation sets the company at a small discount to key comparable Rolls-Royce. On an EV/Ebitda basis, for 2006 the range gives a multiple of 6.6x–7x against 7.9x for RR. MTU’s P/E multiple would be 10.7x–12x against 12.3x for RR for 2006.

There had been some expectation that the company would delay setting a range until after roadshows began, but the leads and seller decided against this. MTU has a clear comparable in Rolls-Royce and as a mature profit-making company it made sense to set the range early on, according to lead bankers.

The banks had also already completed significant pre-marketing – 150 meetings with investors led to a clear view of market sentiment and appetite. This level of knowledge allowed the banks to set a deliberately narrow price range – just 16% – designed to send a message to investors keen to hit out at valuations. German institutions were highly critical of IPO valuations in 2004, causing significant damage to momentum.

Bankers are confident that the nature of MTU’s business means that it can complete its IPO successfully in spite of the current state of the market. MTU operates three lines of business, covering military and commercial engines, and servicing. Revenues in the first quarter of 2005 were up 18.5% to €510m, from €430m for the same period in 2004.

Bookbuilding for the IPO will close on June 3, with the stock scheduled to begin trading on June 6. Assuming the exercise of the greenshoe, KKR will own a 29% stake on which there will be a six-month lock-up. The free-float will be 65%.