ConvaTec ticks up after flat debut

Oct (HKSE: 3366-OL.HK - news) 28 (IFR) - ConvaTec shares closed flat to 225p pricing last Wednesday, but rose steadily on Thursday and Friday, recording final-day pricings of 229p and 240p, the latter up 6.66%.

Pricing came at the bottom of the 225p-275p price range, with the fixed primary proceeds target of US$1.8bn (£1.465bn) forming the bulk of the £1.48bn float.

The primary portion of the deal had been covered after one day, with sponsors Nordic Capital and Avista Capital unmoved by valuation feedback throughout the bookbuild, ultimately opting not to sell outside a 99m-share greenshoe.

There was secondary selling of 8.62m shares for £20.25m, but this all came from ConvaTec management. Through dilution, on the base deal Nordic Capital's ownership drops to 45.1% from 67.8% and Avista Capital to 19.5% from 29.3%. On full exercise of the greenshoe, Nordic's stake drops to 41.6%, with Avista (Frankfurt: 856142 - news) at 18% and the free-float would rise to 39% from 33.8% on the base deal.

The pricing gives ConvaTec a market capitalisation of £4.39bn and makes it the UK's second-largest sponsor-backed IPO, behind Worldpay with £2.48bn.

Pricing was a tidy discount to Danish peer Coloplast (LSE: 0QBO.L - news) , with ConvaTec coming at estimated 2017 P/E of 14.5 and EV/Ebitda of 13.4 on consensus, versus 25 and 18 for Coloplast, respectively. Smith & Nephew (Frankfurt: 502816 - news) trades at an EV/Ebitda of 10 but a P/E of 17.

After hugging the 225p IPO price in the first few hours on debut, the shares dropped to around 224.50p until the early afternoon then fell to below 220p for around an hour before rallying in the afternoon to finish its debut at strike. In total, 104m shares changed hands, representing just under 16% of the IPO offering.

There were a handful of allocations giving investors declarable positions, including Capital Research Global Investors with 3.6%, Artisan Partners with 3.1%, Pelham Capital with 2.8% and Marathon Asset Management with 2%.

The eventual book was fairly concentrated, with the top 10 orders taking around half of the deal, US long-only accounts taking around 40% and UK investors picking up the bulk of the rest. A banker on the deal noted that quality was high, with a number of large orders, but from highly price-sensitive investors.

Bank of America Merrill Lynch, Goldman Sachs (NYSE: GS-PB - news) and UBS (LSE: 0QNR.L - news) were joint global coordinators, and joint bookrunners with Credit Suisse, Deutsche Bank (LSE: 0H7D.L - news) , JP Morgan and Morgan Stanley (Xetra: 885836 - news) . Peel Hunt and RBC Capital were co-lead managers. Evercore advised. (This story will appear in the October 29 issue of IFR magazine; Reporting by Robert Venes)