London Eye and Madame Tussauds-owner Merlin Entertainments is hoping to raise £200 million through a stock market listing in London - as much as 15pc of which could come from retail investors.
Merlin Entertainments, owner of the London Eye and Madame Tussauds, has finally taken its first step towards a £3 billion stock market listing, more than three years after it was forced to shelve its last flotation plans at the eleventh hour.
The world’s second biggest attractions giant behind Disney plans to float at least a fifth of its business on the London stock exchange (LSE: LSE.L - news) next month as it looks to pay down debt and secure a long-term ownership structure that will allow further expansion abroad.
Merlin, which also owns Legoland Parks and Alton Towers, is looking to raise £200 million - as much as 15 per cent of which could come from small private investors, who will be entitled to a 30 per cent discount on annual passes to the group’s UK attractions.
At the same time, the company’s private equity owners, Blackstone (NYSE: BX - news) and CVC (Taiwan OTC: 4744.TWO - news) Capital Partners, plus Kirkbi, the Danish family trust which owns the Lego brand, will raise an estimated £400 million by selling down part of their stakes in a secondary issue. Management and staff will also be able to cash in shares.
The transaction is expected to give Merlin Entertainments a market capitalisation of around £3 billion and implies an enterprise value of £4 billion, including around £1 billion of debt.
Kirkbi, which is controlled by the grandson of Ole Kirk Kristiansen, the creator of Lego, will remain a long-term shareholder in Merlin, while both Blackstone and CVC will retain smaller stakes following the initial public offering.
Merlin’s current shareholder structure is complicated by the fact it has two classes of shares, A and B. At present Kirkbi owns 36pc of A shares, Blackstone owns 34pc and CVC 28pc. Management controls 2pc of A shares, plus B shares which have a nominal value of 12 per cent.
Around three quarters of the £200m raised will be used to pay down Merlin’s debt, which stood at £1.2 billion at the end of June. The sum will also be used to pay advisory fees.
Monday’s announcement has been a long time coming for Nick Varney, Merlin Entertainments’ long-standing chief executive, who watched on in horror in February 2010, when stock market volatility forced the group to scrap flotation plans just days before it was due to publish a document stating its intention to float.
The run-up to Monday’s announcement hasn’t been without its delays either - although on this occasion Mr Varney, who has been with the company since 1990, only had to wait three weeks for market jitters over the US debt ceiling to ease.
“I am bloody delighted,” said Mr Varney as he reflected on the announcement during a ride on the London Eye.
“As [US President Barack] Obama and the Tea Party rattled over the American debt ceiling and our ITF [intention to float] day loomed…I did get a sense of déja vu.”
Mr Varney, who led the management buy-out in 1999 that created Merlin Entertainments, said the company would never have been able to grow from a UK-focused business with just £25 million of turnover to a global giant with £1 billion of revenue without the last 14 years of private equity ownership. The group’s roots can be traced back to 1979 when it started out as a single Sea Life centre in Oban, Scotland. It now has 99 attractions in 22 countries.
But Mr Varney stressed the group now needs a secure long-term shareholder structure to expand the business and fund the development of new theme parks, which typically require an investment of around £200 million and can take five years before the first visitors walk through the gates.
“Those are not investments that private equity find it very easy to make when their investment horizon is every three years because how do they get a return on it?” Mr Varney said. “What we are looking for now in floating the company is to settle the long-term share ownership”.
Mr Varney and the group’s long-standing chief financial officer, Andrew Carr, have both committed to stay on following the flotation. Their remuneration packages will be structured so they are incentivised to remain in place for at least another three years.
Mr Varney said he hoped recent strong demand for Royal Mail shares among retail investors will help Merlin.
“There was £4 billion of demand for retail on the Royal Mail which tells you that there are a lot of people out there who are interested in finding better ways of getting returns than just bank accounts. The British public has always reacted well to brands that people know and businesses they understand.
“While Royal Mail was a privatisation story, this is a similarly unique opportunity to buy into a company that owns well-known consumer brands.”
Individual shareholders will be required to invest a minimum of £1,000.
Merlin Entertainments generated £1.1bn of revenue in 2012 and earnings before taxes, depreciation, and amortization (Ebitda) of £346m.