Premiere sets realistic valuation for test float

Permira is not the first private equity seller to test the public markets in 2005, but its aims so far are the grandest. KKR and Goldman Sachs completed their exit from Wincor Nixdorf, reaping a further €333m on top of proceeds from last

May’s IPO. Permira is looking to sell shares in Premiere worth €500m by reducing its current holding of 54.8% to 23.7%.

The price range was set at €24–€28, reflecting investor feedback and analyst valuations. The company was believed to have targeted €30 per share as its valuation, but chose to set the range at the lower end of feedback due to the sensitive nature of the market. Germany saw only three listings over US$50m in 2004 and has seen just one so far in 2005, and the price ranges had to be slashed in three of those transactions to attract orders into the book.

The €1.55bn IPO of Deutsche Postbank was the main transaction of 2004, but it struggled amid disagreements over valuation, which hit retail demand particularly hard. With Premiere targeting retail participation of around 30%, the company has been careful not to push on valuation.

The main comparable story that investors are looking at is Sky, which is also the cheapest. Sky currently trades at around 10.4x–10.8x 2006 Ebitda, while the price range for Premiere gives a multiple range of 9.6x–10.9x.

Bookrunners suggest that this valuation is fair, as Sky is now in a mature market with a 40% market penetration while Premiere has only 8% of the market and greater growth potential. However, others suggest that valuing against Sky is very aggressive, and question whether Premiere can realise that potential in a market that already has 30 free-to-air channels.

This has caused some concern within the syndicate due to the fee structure that has been put in place. The base fees for the offer are very low, at just 1%, but this could rise to 3% at the discretion of the company and Permira. However, with bankers uncertain on even this price range, there is a concern that what may be viewed as a positive result by bankers might not be such a winner for the seller.

The offer will total 36.6m shares, with 12m of these to be primary stock, plus a further 5.5m as a greenshoe. If all the stock is placed, including the greenshoe, the company will have a free-float of 51.3% and a market capitalisation of up to €2.3bn.

Much of the secondary stock comes from Permira, while chairman Georg Kofler retains 82% of his shares, with a stake of 13.9%. Management will be subject to a one-year lock-up, although Permira will only be locked up for six months. Some concerns have already been raised that Permira is selling down after only three years, especially due to the short lock-up.

Bankers are attaching significant importance to the IPO because of its potential impact on the German pipeline. They are being cagey over future prospects due to the sensitivity of the market, but are keen to see Premiere go well as it could provide some much needed momentum to the market and allow others to tap into vital retail demand. Bookbuilding continues until March 8 with listing the following day.