Private equity firms are bringing their portfolio companies back to the US IPO market, testing investor demand for firms that have more debt than other recent listings.
NIQ Global Intelligence Plc, the former Nielsen Holdings consumer shopping behavior research unit, and McGraw Hill Inc., the textbook publisher and digital learning outfit, filed publicly for initial public offerings on June 27 and could launch as soon as next week. The former counts Advent International as its main backer, and the latter is part of the stable at billionaire Tom Gores’ Platinum Equity.
Both companies are expected to deliver hefty IPOs. NIQ could raise about $1.25 billion, Bloomberg News reported in February, and McGraw Hill’s $2.1 billion of revenue in its most recent fiscal year also points to a potentially large offering. Yet they also carry significant levels of debt relative to their profitability and will use at least part of the IPO proceeds to pay down borrowings, their respective filings with the US Securities and Exchange Commission show.
This reduces the chance of seeing first-day pops like stablecoin issuer Circle Internet Group Inc.’s 168.5% jump.
“Private equity-backed IPOs are usually more efficiently priced than other IPOs, so we don’t expect to see a significant pop initially,” said Josef Schuster, the founder of IPOX Schuster, a Chicago-based provider of IPO indexes. Even so, there’s still risk appetite in the market and the IPO window is wide open, he said.
NIQ is carrying nearly $4 billion of net debt, according to its IPO filing, or more than five times its adjusted Ebitda of $740.7 million last year. McGraw Hill, which made a failed attempt to go public several years before its roughly $4.7 billion sale to Platinum in 2021, has about $2.8 billion of net debt outstanding, according to its filing, or about four times its adjusted Ebitda of $666.4 million in the year ended March 31.
With the proceeds of their IPOs in hand, these leverage ratios are likely to fall to three to four times or lower, levels more palatable to public investors.
Advent, in partnership with Jim Peck, former chief executive officer of credit bureau TransUnion Corp., bought Nielsen’s consumer business for $2.7 billion in 2021. The company was rebranded as NIQ and Peck was installed as CEO, repeating the lineup of private equity firm and leader from the TransUnion buyout. Under Advent and Peck, TransUnion’s enterprise value increased more than five fold from 2012 through its IPO in 2015 until Peck’s retirement in 2019, the company said when he stepped down.
NIQ is expected to draw comparisons with solidly growing information services companies such as Gartner Inc., MSCI Inc. and Verisk Analytics Inc.
As a former co-head of global equity capital markets at Barclays Plc, David Erickson has advised on many PE-backed IPOs. The adjunct professor of business at Columbia Business School said these companies’ debt levels, not just their earnings power and growth, needed to be in line with comparable firms.
“Otherwise, it is going to be a red flag in the IPO process,” Erickson said.
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