New York-based travel service company Travelport launched a $2 billion initial public offering to cut debt, with more IPOs on the way as bankers say private equity firms seek to offload companies they own.
The deal, which values Travelport on the low end at $3 billion, paves the way for an eventual exit for The
Travelport, which provides travel services such as wholesale hotel bookings, aims to sell $1.775 billion worth of new shares to institutional investors in the London listing.
Separately, the Government of Singapore Investment Corp (GIC) sovereign wealth fund will buy $225 million worth of new shares at the same time as the IPO, and will as a result hold 7.19 percent of the new equity base.
The IPO is likely to be one of many similar deals this year from private equity firms who are weighed down by the many acquisitions they made at the height of the credit boom.
Bankers are increasingly confident that Europe’s IPO market will take off this year and may deliver as much as five times capital raising as in 2009, when the region lagged booming markets in Asia and the United States.
Travelport is selling more than 50 percent of its enlarged share capital, and will see its net debt level drop to $2.3 billion after the listing from $4.1 billion, Chief Executive Officer Jeff Clarke said in a call with journalists.
The ratio of net debt to earnings before interest, debt and amortization of goodwill (EBITDA) will reduce to 3.5x from 6.5x now, a person close to the company said, and in the long run to 1.5x to 2x.
The deal values Travelport at about 14x 2010 earnings and 8x to 9.5x enterprise value to EBITDA, in line with peers’ 15x price-to-earnings ratio and 9x EV/EBITDA.
Note So Fast
Blackstone — which owns a 70 percent stake — and other shareholders may later sell existing shares, but only if a 15 percent overallotment option is exercised. This is in marked contrast to more audacious exits in the boom years.
Buyout firms offloaded companies rapidly through the IPO market until the middle of 2007, but reluctant investors are now forcing them to hold stakes in companies after they list, to align the interests of both parties.
“When they private equity firms are looking at the IPO market at the moment, they are not looking at it as a mechanism for an immediate exit,” said a London-based banker.
“It’s more a mechanism to enhance the capital structure of the asset they have exposure to and over time providing a pathway to exit,” he added.
French nursing home Medica which is raising €250 million in an IPO, is using a similar structure, whereby its private equity backers only sell existing shares in an overallotment option.
Travelport had been pre-marketed in 2008 but a listing never went ahead because of poor market conditions, a source told Reuters in December. There was also a poor reaction when buy-out house
Travelport will start its bookbuilding process on Feb. 1, while shares are expected to begin trading on Feb. 12, a person close to the deal said.
UBS is the sole sponsor for the deal, while Credit Suisse, Deutsche Bank are the joint global co-ordinators, with Barclays Capital and Citigroup as joint bookrunners.
(Reporting by Daisy Ku)