WageWorks Cuts IPO Price Range 43% After Seeking Premium
WageWorks Inc., the provider of human-resources services for companies including Ford Motor Co. (F) and Morgan Stanley, cut the price range for its initial public offering as much as 43 percent after seeking a valuation more than five times its peers.
The company lowered the range to $8 to $9 a share, according to a regulatory filing. The midpoint price values WageWorks at about 1.8 times last year’s sales, or more than an average of about 0.5 times sales among 17 U.S.-listed human- resources services companies with a market value of less than $1 billion, data compiled by Bloomberg show.
WageWorks, whose services allow a company’s employees to set aside pretax wages to pay for health-care and commuting expenses, failed to obtain the valuation it was seeking after the Standard & Poor’s 500 Index declined seven out of the past eight trading days through yesterday. The company also faces new U.S. health-care laws that limit the use of flexible spending and health savings accounts, two of WageWorks’ services.
“There’s definitely an overhang right now with health care,” said Darren Fabric, a Chicago-based managing director at IPOX Capital Management LLC, which oversees about $2.5 billion. “There’s a lot of uncertainty long-term regarding what health care is going to look like.”
Aetna, Automatic Data
San Mateo, California-based WageWorks, which says it competes with U.S. health insurer Aetna Inc. (AET) and Automatic Data Processing Inc., would raise about $49 million at the midpoint of the reduced range, and be valued as a whole at about $212 million. That compares with $325 million at the original midpoint.
Barrett Business Services Inc., TeamStaff Inc. and Fortune Industries Inc., peers of similar size in the human-resources industry, all still trade at lower multiples than WageWorks is seeking.
“It may be a little richly valued, as its sales are not growing that quickly excluding acquisitions,” Stephanie Chang, an analyst at Greenwich, Connecticut-based Renaissance Capital LLC, said before WageWorks cut its range.
Sales at WageWorks, which has 37 Fortune 100 clients, rose 20 percent in the six months through June to $69.2 million from a year earlier, primarily because of takeovers, the company said in its filing. Full-year sales in 2010 were $115 million, 6 percent higher than the previous year.
Growth Strategy
WageWorks’ growth strategy includes buying smaller operators, and the company has made four acquisitions since 2007 to add clients and services, according to its filing. Purchases have included Creative Benefits in September 2008 and Fringe Benefits Management Co. in November.
Customers access WageWorks benefit programs through Web- based software, which allows the company to enhance its products quickly, it said in its filing. This “on-demand” business model also requires less up-front investment by customers compared with services that require on-site software installation, it said.
WageWorks customers offer the services to their employees as a way to reduce taxes. Using the company’s services, employees can opt to set aside a portion of their paychecks before being charged income taxes, and use that money to buy public-transportation passes or prescription drugs.
IPO Proceeds
The company initially filed in April, joining a flood of companies to announce plans for IPOs in the second quarter of this year. WageWorks General Counsel Kimberly Jackson declined to comment, citing the pre-IPO quiet period.
Proceeds from the offering will be used for working capital and general corporate purposes, the filing showed.
Owners of WageWorks include VantagePoint Capital Partners, Advent International Corp. and Camden Partners. All of the shares in the offering are being sold by WageWorks.
Credit Suisse Group AG (CSGN) and William Blair & Co. are leading the offering, according to the filing. The shares are scheduled to begin trading tomorrow on the New York Stock Exchange under the symbol WAGE.
To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net.
To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.
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