Carlyle Seeks Allison Transmission IPO at Triple 2007 Value
Carlyle Group LP (CG) and Onex Corp. (OCX) are seeking to take Allison Transmission Holdings Inc. (ALSN) public at a valuation that’s almost triple what they paid for the auto-parts maker in the last buyout boom.
Allison plans to offer 21.7 million shares for $22 to $24 apiece today, a sale that would raise as much as $522 million for the private-equity firms and cut their stakes to 44 percent each, according to the prospectus. The midpoint would give Allison a market value of about $4.2 billion. That compares with a $1.53 billion equity value when Carlyle and Onex bought the company from General Motors Corp. in 2007, based on documents Carlyle sent to investors.
The initial public offering would make Indianapolis-based Allison twice as expensive as former GM units Delphi Automotive Plc (DLPH) and Remy International Inc. (RMYI), based on last year’s earnings, just as analysts predict slowing growth in U.S. truck sales. While Allison’s profit more than tripled in 2011, the IPO price leaves little room for further gains, said Peter Sorrentino of Huntington Asset Advisors in Cincinnati.
“That’s a stiff valuation for a company that probably will struggle to deliver a whole lot more to the upside,” said Sorrentino, who helps oversee $14.6 billion as a senior portfolio manager. “We’ve had a pretty decent rebound in terms of vehicle demand and in transportation equipment, so it’s a little late in the cycle to be paying a premium.”
Including net debt, Allison would be valued at $7.2 billion at the midpoint of its price range, or about 11 times last year’s earnings before interest, taxes, depreciation and amortization. Delphi, the car-parts maker formerly owned by GM that went public last year, has an enterprise value-to-Ebitda multiple of about 5.5, data compiled by Bloomberg show. Remy, the former GM unit that exited bankruptcy in 2007, has an enterprise value of about 5.4 times Ebitda, the data show.
Eaton Corp. (ETN), a Cleveland-based company that Allison names as a competitor, has an enterprise value of $19.5 billion, or about 8.9 times Ebitda of $2.2 billion in the past 12 months.
Allison’s stock will start trading tomorrow on the New York Stock Exchange (NYX) under the symbol ALSN. Melissa Sauer, a spokeswoman for Allison, declined to comment. A spokesperson for Toronto-based Onex didn’t return a phone call seeking comment. Chris Ullman, a spokesman at Washington-based Carlyle, declined to comment.
Carlyle and Onex bought Allison at the tail end of a private-equity buying spree from 2005 to 2007, when about $1.6 trillion in leveraged buyouts were completed, according to Preqin Ltd., a London-based research firm. Private-equity firms are facing pressure from clients to sell holdings and return capital after economic concerns prevented them from exiting investments during the second half of 2011. Carlyle is also raising funds as it pursues its own public offering.
“They probably got it well before the bottom in terms of valuation, so they’re trying to wring all the value they can out of it,” said Kevin Tynan, a Bloomberg Industries analyst based in Princeton, New Jersey.
Allison will get no proceeds from the IPO. The company took on $4.2 billion of debt in connection with the buyout and still carries about $3.4 billion, it said in its filing. Moody’s Investors Service raised its rating on Allison’s secured bank credit facilities to Ba3 from B1, saying in a March 8 statement it expected “modest revenue growth over the near term.”
The company has benefited from a surge in truck sales, reporting net income of $103 million last year after returning to profit in 2010. Allison got 34 percent of its 2011 revenue, or $727 million, from parts for on-highway vehicles in North America, the filing shows.
Growth in North American sales of vehicles from delivery vans to 18-wheelers jumped 54 percent in 2011 and may slow to a 14 percent rate this year, according to Bloomberg Industries. Growth may shrink further to 3.1 percent from 2013 to 2014, Allison said in its prospectus, citing ACT Research.
“I have a little more reservation about what the next two years might look like,” said Basili Alukos, an analyst at Morningstar Inc. (MORN) who projects 6 percent annual sales growth in 2012 and 2013. “We’re at normalized demand right now. We don’t expect a huge surge in truck purchases.”
Allison says it has 62 percent of the global market for medium- and heavy-duty trucks driven on highways. It’s also the market leader in North America for school buses and hybrid transit buses, and the top supplier of transmissions to the U.S. military, according to its filing. The company’s chief executive officer, Lawrence Dewey, has worked at the company since 1989.
Bank of America Corp., Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) are leading the offering. Allison traces its roots to Jim Allison, who was a co-founder of Indianapolis Motor Speedway, home of the Indianapolis 500 auto race, a track built to test race car parts. GM bought the company in 1929 after Allison’s death.
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