The $2 billion float of catering services firm Spotless is expected to be a major test for the local market as Australian fund managers voice cynicism about the company, which is being sold for almost double the price it was purchased for by its private equity owner almost two years ago.
Pacific Equity Partners stands to make about $1bn through the sale of Spotless.
That is on top of Peter’s Ice Cream, which is also earmarked for an initial public offering or trade sale and also could fetch close to double the amount PEP paid for the business.
PEP yesterday lodged the prospectus for Spotless in what is shaping up to be the largest float to date this calendar year.
Investment banks Citi, UBS and Deutsche are the joint lead managers for the IPO, which would involve vendor PEP raising $1bn, while Highbury Partnership is exclusive finance adviser and Evans and Partners co-lead manager.
Spotless chief executive Bruce Dixon said the growth of the company was underpinned by the increasing trend towards outsourcing in Australia and there was scope for expansion.
“No single customer contract represents more than 4 per cent of our pro forma 2013 forecasted sales revenue,” he said.
The company, to be chaired by former Qantas chairman Margaret Jackson and run by Mr Dixon, the former boss of Healthscope, would embark on a bookbuild on May 20 and 21 ahead of a May 23 sharemarket listing.
Australian investors are sceptical about the $1.8bn to $1.9bn market capitalisation outlined in the prospectus, after PEP”s $1.3bn purchase in 2012.
Documents revealed yesterday indicated shares would be sold at a range of between $1.60 and $1.85 each to raise between $864.9 million and $1bn by selling about half of the company.
The price represents 7.9 to 8.5 times earnings before interest, tax, depreciation and amortisation for the 2015 financial year.
But sources close to the deal said comparative offshore companies were trading at 11 to 13.7 times EBITDA.
They also said the $301m of annual forecasted earnings for fiscal 2015 was almost double the level previously secured by PEP.
PEP itself is expected to reap about $234.7m in cash from the float and potentially a further $150m should there be demand, with an escrow in place for just over a year.
A further $698m from the IPO would be used for costs and to pay down debt.
One fund manager had previously said the growth prospects for Spotless were not high enough for the price the private equity vendor was asking and that the company would need to rely strongly on support from international investors to support the IPO.
However, sources close to the deal say strong inquiries are flowing from European investors, impressed by the future earnings profile.
Spotless chairwoman Ms Jackson said the business was well diversified across industries and services. “The business has identified potential new contract opportunities, representing approximately $1.5bn in annual revenue coming to market by the end of FY2015, with further significant new opportunities in adjacent services and sectors,” she said.
“Within Australia and New Zealand, Spotless’ scale allows us to deliver a fully integrated multi-service offering,” said Mr Dixon.
Meanwhile, Macquarie Capital would work alongside Morgan Stanley for the $450m sale of Peters, either by way of IPO or trade sale in a dual track process.
PEP bought Peters for $250m from Nestle in 2012.