* HCA, Toys "R" Us IPOs could be price-sensitive
* Metals USA IPO pricing was too aggressive - analyst
* HCA IPO size could signal mkt appetite concern - analyst
By Clare Baldwin
NEW YORK, April 9 Private equity firms seeking
an IPO exit route may struggle to get the frothy initial public
offering values seen before the financial crisis and will need
to carefully woo investors.
Surging stock indexes have triggered renewed interest in
the IPO market by private equity companies seeking to sell
stakes in their portfolio companies.
But private equity-backed IPOs have lagged overall initial
public offering performance in the U.S., according to Thomson
An IPO that fails to gain after its pricing can hurt
investor sentiment toward follow-on offerings. It can also hurt
other, similar offerings.
Private equity firms typically exit investments by IPO
gradually, with a small offering to start with, and follow-on
offerings later. They typically keep stakes in the firms they
IPO for several years.
Apollo Management LP [APOLO.UL]-backed Metals USA Holdings
Corp (MUSA.N) on Thursday priced its shares 10.5 percent above
the midpoint of the expected range and sold more shares than
anticipated. But the shares swooned 8.6 percent in their
trading debut on Friday.
"This one didn't work," said Ben Holmes, founder of equity
capital markets research house Morningnotes.com. "I think it
forces the bankers... to sharpen their pencils and pay a little
closer attention to their valuation and their pricing terms."
At the midpoint of its original price range, Metals USA,
which sells processed carbon steel, stainless steel, aluminum,
red metals and manufactured metal parts to customers in North
America, was at a discount to its peers, said Eric Guja, an
analyst with Connecticut-based Renaissance Capital. But at the
higher IPO price it was in line with chief competitors Reliance
Steel & Aluminum Co (RS.N), he said.
"They have to price these things to work or people stop
buying them," Holmes said. "I don't think we're at the point
where they can start coming out aggressively."
Hospital chain HCA, owned by private equity firms including
Kohlberg Kravis Roberts & Co [KKR.UL] and Bain Capital, will be
interviewing banks in the coming weeks to put together an
underwriting group for an upcoming IPO, a source familiar with
the situation told Reuters. [ID:nN08202131]
Toys "R" Us, owned by KKR, Bain and Vornado Realty Trust
(VNO.N), is also considering an IPO and is examining the
strength of the IPO and retail markets, sources told Reuters.
Private-equity backed Dutch semiconductor firm NXP is also
planning an IPO, sources said. [ID:nLDE62Q0AH]
The three major stock indexes on Friday achieved their
sixth straight week of gains -- a positive run not seen since
stocks rebounded from more than 12-year lows in March 2009.
Still, private equity-backed IPOs have lagged.
Twenty of the 60 U.S. IPOs in 2009 were private
equity-backed. They posted first day gains of 11.5 percent
compared with all IPOs which, on average, posted first-day
gains of 17.3 percent.
So far in 2010, five of the 29 U.S. IPOs have been
private-equity backed. Even looking beyond first-day
performance, they have lagged the overall IPO market. To date,
private equity-backed IPOs have posted returns of about 8
percent compared with all IPOs' returns of 11 percent.
This year's performance has been weighed especially by
Cellu Tissue Holdings Inc CLU.N, which is down 23 percent.
Cellu Tissue makes specialty paper products used in everything
from toilet paper to paper towels. Its main backer was private
equity firm Weston Presidio LP.
HCA could have a market capitalization at $25 to $30
billion, said Josef Schuster, founder of Chicago-based research
house IPOX Schuster LLC.
He said that an average IPO sells 25 to 30 percent of its
market capitalization; if HCA is planning to sell only $3 to
$4.5 billion, it could signal concern about the market's
appetite for a full-size offering. Media reports have pointed
to the smaller-sized offering.
"It's a signal that the market may not be able to absorb
the $10 billion offering. It may be able to absorb between $3
and $4.5 billion but not higher." Schuster said. "$5 to $10
billion is a lot of money even from a global perspective."
Schuster said a smaller offering could also help HCA price
higher because it won't appear that KKR and Bain are abandoning
(Reporting by Clare Baldwin, additional reporting by Megan
Davies and Rodrigo Campos; Editing by Tim Dobbyn)