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Public market turns cooler

The first signs of growing selectivity may be emerging in the public equities market, potentially reducing exit prospects for private equity-backed companies.

The IPO of Telenet, the Belgian cable company that counts GIMV among its shareholders, faced a tough struggle just to price at the bottom of its range on October 10. It traded down by 9% the next day, reinforcing how the market has cooled since KKR-backed MTU Aero Engines priced a €650m IPO with 10-times coverage at the start of summer.

Paris-based satellite operator Eutelsat is launching its IPO into this environment. It is generally accepted that the sector may well be stronger than cable, although the exit by Eurazeo, Spectrum Equity, Texas Pacific, Cinven and Goldman Sachs is larger than was expected in some quarters.

Eutelsat, which was recapitalised by the shareholders in March, set an indicative price range of €15.25 to €17.25. The deal will comprise up to 56.4m primary shares, with that portion capped at €860m and the proceeds designated for debt reduction. Shareholders will also sell 21.5m shares in the base deal, while some have an option to sell a further 11.7m shares and there is a greenshoe of 13.4m shares. If the deal were to price at the top of the range, it would be worth around €1.8bn and net a further €827m for the shareholders.

Eurazeo became Eutelsat’s largest shareholder in April 2003, paying €219m for a 23.4% stake. It has since increased its ownership to 27% and received €169.7m from the €2.25bn recapitalisation of Eutelsat in March.

Cinven paid €337m for an 11% stake in December 2004, later increasing its ownership to 16% after buying 5% from Goldman Sachs Capital Partners, which still retains 10.6% prior to the IPO. Spectrum and TPG are shareholders through the Nebozzo holding company, which is controlled by Eurazeo.

Telenet priced its IPO at €21 and in the process showed just how much its valuation had been hit by the events surrounding Swiss peer cablecom. When Telenet officially launched its IPO, the main questions had been how its timing would fit in with the IPO of cablecom, and what the discount would be. The €21.00 to €25.50 price range for Telenet valued the company at around 9.9x to 11.4x 2006 EV/Ebitda, while the cablecom range was around 10.5x to 12x. (See page 8.)