HD Supply Seeks $1.33 Billion in IPO Amid Housing Comeback

June 13 (Bloomberg) -- HD Supply Holdings Inc. is seeking as much as $1.33 billion in its U.S. initial public offering, a half-dozen years after the construction-supply company was bought in the midst of the housing crash.

The Atlanta-based company is offering 53.2 million shares, equivalent to a 29 percent stake, for $22 to $25 each, according to a regulatory filing today. The IPO is set for June 26, according to data compiled by Bloomberg.

At the midpoint of the range, the price would spell a gain for private-equity owners Carlyle Group LP, Bain Capital LLC and Clayton Dubilier & Rice LLC, which acquired HD Supply during the worst housing slump since the Great Depression. Now the company is tapping equity markets amid a rebounding housing market and increasing demand from contractors, as rising U.S. home prices give homeowners the confidence to spend on renovations.

“This is an opportune time to go public based on the momentum of the U.S. housing recovery,” Neil Frohnapple, a building-materials analyst at Cleveland-based Northcoast Research, said by e-mail. “There is a lot of interest from investors in companies with housing recovery exposure and HD Supply will provide investors with another avenue to play this recovery.”

The slump almost derailed the buyout, originally priced at $10.3 billion including debt. JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. balked at financing the takeover amid tightening credit markets, people familiar with the matter said at the time. In August 2007, parent Home Depot Inc. and the parties agreed to lower the price to $8.5 billion.

Earnings Hit

The housing slump ate into profit at HD Supply, whose adjusted earnings before interest, taxes, depreciation and amortization tumbled from $964 million in the year before the buyout to $343 million in the fiscal year ended January 31, 2010.

In recent years, the rebound in housing has reversed that trend. It’s also helped turn a looming loss for the buyout firms into a modest gain on investment. An offering priced at the $23.50-a-share midpoint of the range would give them an 18 percent unrealized gain on the $2.28 billion of equity they sank in the deal, according to data compiled by Bloomberg.

“Private equity seems to be taking advantage here of a window of opportunity,” Josef Schuster, the founder of IPOX Schuster LLC, an investment firm based in Chicago with about $2.5 billion under management, said by phone. “They’ll be able to bring this deal to the market at a reasonable valuation, since the homebuilding sector is pretty hot right now and it’s still a positive environment for IPOs.”

HD Supply Valuation

HD Supply filed for an IPO in April using a $1 billion placeholder amount. The stock will list on the Nasdaq Stock Market under the symbol HDS.

At the midpoint of the range, HD Supply would have an enterprise value of $8.67 billion, which includes a working-capital surplus of about $1.2 billion.

That’s about 12 times Ebitda of $714 million in the 12 months through May 5, adjusted to reflect the cost of extinguishing debt and stock-based compensation, data compiled by Bloomberg show. That compares with the median multiple of about 13 for companies including Fastenal Co. and WW Grainger Inc., the data show.

HD Supply will use estimated IPO proceeds of about $1.16 billion after fees to reduce debt to $5.6 billion, filings show. Carlyle, Bain and Clayton, Dubilier & Rice will see their respective stakes shrink to 20 percent from 28 percent as the company sells new stock in the IPO, according to the documents.

Bank of America Corp., Barclays Plc, JPMorgan and Credit Suisse Group AG are among the banks managing the share sale.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Leslie Picker in New York at lpicker2@bloomberg.net; David Carey in New York at dcarey13@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net