holidays (with the exception of several
SPACs) but at least nine companies have
now launched deals for pricing over the
next two weeks. In addition, there are at
least another 10–15 companies that could
look to launch IPOs over the next week or
two.
Bankers expect to bring a heavy slate of
IPOs and secondaries, but some are cautious
about the market’s capacity to absorb the
supply of new deals.
“It’s going to be an interesting 12 weeks
ahead of the mid-term elections [in
November],” one banker said.
“There’s a lot of stuff for investors to
worry about, whether it is the mid-terms or
general Washington craziness.”Another consideration is Jewish holidays
this month (Rosh Hashanah and Yom
Kippur) and the next FOMC decision late this
month (September 25–26). Already these
factors have contributed to some longer-
than-usual IPO roadshow timetables.
Friday saw family controlled maker of steel
pipes, Zekelman Industries, launch an NYSE
IPO of up to US$793.3m for pricing on
September 20. Zekelman is selling 27.75m
shares and insiders 14m shares at US$17–$19,
representing about 20% of the company.
Goldman Sachs, Bank of America Merrill Lynch,
BMO Capital Markets and Credit Suisse lead a
10-firm underwriting syndicate.
At the midpoint, Zekelman is being
valued at a 2019 EV/Ebitda multiple of 7.3times and a price-earnings multiple for the
same year of 10.5 times, according to people
familiar with the deal.
This represents a discount to a steel
fabrication comp set that includes Valmont
Industries, Atkore International and
Gibraltar Industries and trades at 8.1 times
2019 EV/Ebitda and 13.5 times P/E
respectively.
Though the US’s imposition of steel tariffs
is a tailwind for the domestic steel sector,
Zekelman’s record of successful acquisitions
is expected to be as much of a selling point.
Also on Friday, event planning platform
EVENTBRITE launched its IPO of up to
US$210m, also for pricing on September 20.
Eventbrite is offering 10m primary
shares, or about 13% of the company, at
US$19-$21 each in a deal led by Goldman
Sachs, JP Morgan, Allen & Company and RBC
Capital Markets.
The terms attribute Eventbrite a market
cap of US$1.63bn versus its sales of
US$142.1m for the first six months of 2018.
The shortened week (due to the Labor Day
holiday on Monday) brought a solid round of
secondaries – follow-ons from US-listed
companies raised US$2.2bn – but some
issuers ran into heavy selling pressure as
investors returned from the break in a
selling mood and market volatility rose.
The big question now, one hedge fund
manager said, was whether the market can
bounce back in the coming week as it has
managed to do consistently after other
recent sell-offs.PRINCIPIA LAUNCHES US$80m IPOPRINCIPIA BIOPHARMA was the first biotech IPO
out of the gate after the Labor Day break.
The cancer and autoimmune drug
developer launched a roughly US$80m IPO
that comes just weeks after closing a
US$50m private round. The August
crossover round essentially served as pre-
marketing for the IPO.
True to form, existing shareholders
committed to “at least” US$26m on the IPO,
an unusual disclosure pointing to a potential
upsize. The Series C round in August was
struck at US$14.39 per share, just below the
US$15-$17 price targeted on the 4.69m-share
IPO.
Bank of America Merrill Lynch, Leerink Partners
and Wells Fargo are looking to price the deal
on Thursday, September 13.
Cormorant Asset Management, a well-
known crossover investor, anchored the
August private raise with a US$16m
investment alongside existing backers such
as Baker Brothers Advisors, New Leaf
Ventures, OrbiMed and GlaxoSmithKline.
Notably Cormorant does not have board
representation and therefore does not need92 International Financing Review September 8 2018Eli Lilly preps animal health
unit for IPO
n US Pharma poised to secure US$1.6bn on Elanco spin-off
The circa US$1.6bn IPO of ELANCO ANIMAL HEALTH,
the Eli Lilly animal health unit, is off to a quick
start, with investors already indicating strong
interest in the deal following its launch on
Thursday.
Given the lengthy build-up and the unit’s
strong pedigree, the positive early reception is
not too surprising.
Elanco prepped the IPO launch with a blowout
US$2bn debt sale late last month to establish a
standalone capital structure.
Goldman Sachs, JP Morgan and Morgan
Stanley, heading a 16-firm underwriting
syndicate, followed up that success by launching
62.9m shares at US$20–$23 each for pricing on
Thursday, September 20.
Include the greenshoe option and the take
climbs to US$1.66bn, nearly all of which will flow
to Lilly as the first step in a two-part spin with a
distribution of the remaining 80% stake to the
company’s shareholders within 180 days.
“The feedback from Eli Lilly shareholders
has been positive,” one banker involved in the
underwriting told IFR. “The spin-off allows Lilly
to focus on human health and Elanco on animal
health.
“Investors recognise that this is smart
strategically and financially.”
Lilly has spent years prepping Elanco to stand
on its own, divesting unprofitable businesses,
consolidating production and R&D, and reducing
headcount. Rather than grow for growth alone,
the turnaround targeted profitability.
In first half of 2018, Elanco pumped out
US$306.2m of Ebitda on revenue of US$1.51bn,
a 20.3% margin. That compares with a
13.5% margin in 2015 and 17% last year, on amodest decline in revenue from US$2.91bn to
US$2.89bn.
“It’s a very clean story. More like an old-
fashioned consumer health company,” said a
second banker on the deal. “Elanco does not
have the same level of regulatory risk that a
traditional pharmaceutical company has.”
Elanco, which sells 125 products in 90
countries, has now positioned itself for growth,
with nine new products launched since 2015,
three planned for later this year, and 33 more in
development.
“We will be a revenue growth company,”
Elanco CEO Jeffrey Simmons said in the
roadshow presentation. “Starting in 2015, we
aggressively repositioned the company in a way
we believe will help achieve margin expansion.”
As was the case with Pfizer’s spin-off of
its animal health unit, Zoetis, in 2013, Elanco
has built in flexibility on valuation, given the
significance to Lilly and its shareholders.
Lilly shares are up 25% since it said in June
that it was moving ahead with the spin-off,
though some of that move reflects bullish
expectations for its drug pipeline.
On 2019 projections, Elanco’s IPO targets
a valuation of roughly 13-14 times EV/Ebitda,
a steep discount to the 19 times that Zoetis
currently trades at and versus 12.5 times of Lilly,
based on estimates of the underwriting banks
and consensus estimates.
While there is continued growth baked into
those expectations, Elanco is too big to fail. At
US$1.6bn, the IPO would rank as the largest
healthcare IPO since Pfizer spun off Zoetis in
2013 via a US$2.57bn IPO, according to IFR data.
Stephen Lacey10 Equities and SE 2250 p81-98.indd 92 07/09/2018 20:19:33