Deal in Focus: Telepizza listing leads southern Europe IPO wave

Telepizza's private equity backers, Permira and KKR, listed the pizza delivery company on the Spanish stock exchange at the end of April 2016, recognising a positive trend in the food delivery sector.

According to a source close to the situation, the GPs were looking at valuations for pizza delivery companies and saw a growing trend of 45% on average in the last 12 months, alongside increasing interest around this specific sector. The buyout duo had been approached by several potential buyers, including larger industrial groups and private equity firms, but KKR believed an IPO was the best option for maximising the asset's value, the source said.

At the time of the offering, the European market was suffering a dearth of IPOs. In fact, the listing was the first flotation in the southern European market in 2016 and paved the way for two other large listings that followed immediately after: Spanish leisure park operator Parques Reunidos and Italian sports equipment producer Technogym.

The turnaround was centred on a strong partnership and alignment of interest between management, Permira and KKR, who were able to implement the turnaround following a recapitalisation of the business in October 2014" – Mark Brown, KKR Credit

This trend can also be recognised across all of Europe. According to unquote" data, 70% of the €7bn proceeds reaped through IPOs in Europe this year have been raised since April. All of a sudden, the private equity industry appears to be looking back to the public market after several months of hesitation.

However, the renewed interest for the public market was not reflected in the company's initial trading. At the time of publication, Telepizza's shares are trading down. From the initial price of 775 cents apiece, shares are now valued at 570 cents. This figure marks a 23% plunge for the company's stock since its public debut. According to press reports, the vast majority of large IPOs in the eurozone in 2016 are now trading below their initial price, raising doubts over a rebound in the short-term.

Speaking to unquote", Mark Brown, a director at KKR Credit, says: "Telepizza is well positioned to deliver strong performance as the benefits of a successful operational turnaround gain traction and the Spanish macro continues to improve. The turnaround was centred on a strong partnership and alignment of interest between management, Permira and KKR who were able to implement the turnaround following a recapitalisation of the business in October 2014."

A decade in the oven
The private-equity-backed history of Telepizza started in 2006, when Permira bought an 86.2% stake in the business in a €850m take-private, according to unquote" data. At the time of the transaction, ING and Royal Bank of Scotland provided a senior debt package of around €720m, with European Capital providing €5.5m in mezzanine funding. In 2012, the company raised a further €35m from Permira as part of a larger refinancing operation.

According to Brown, KKR initially bought a slice of the business's debt in the secondary market in 2013. Subsequently, KKR led a €240m refinancing in October 2014, acquiring a 36% stake in the business with Permira retaining a 51% stake. Lenders also added a €10m revolving credit facility to the package.

Following the deal, the company's senior debt was reduced to €285m, equal to a decrease from 7.3x EBITDA to 3.7x. Brown says the restructuring allowed the company to stop paying cash interest and instead reinvest in rebranding, advertising, increasing capex and the product's quality, as well as boosting store refurbishment and its international expansion.

Lastly, as part of the company's preparation for the IPO, the GPs refinanced the company's senior debt facility, significantly reducing the net debt, says Brown. By the time of its listing, Telepizza had €160m of net debt.

When the company floated, Permira and KKR reaped proceeds of €431m. Following a six-month lock-up period, Permira and KKR will own a 12.8% and a 5.1% stake in the business, respectively.

People
KKR Credit – Mark Brown (director).

Advisers
Company – Rothschild (M&A).

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