UPDATE 4-Gartmore plans IPO to cut H&F stake, debt

Fri Nov 20, 2009 3:57pm GMT

Quotes

   

* To raise up to 550 million stg in Dec IPO-sources

* Hellman & Friedman will no longer be majority investor

* Will use 250 million stg to cut net debt

* Offering to value firm at about 1 bln sterling

(Add valuation comparisons, details)

By Cecilia Valente and Daisy Ku

LONDON, Nov 20 (Reuters) - Private equity-owned fund manager Gartmore has kicked-off a much-touted run of initial public offerings among companies owned by cash-hungry buyout firms, in a deal valuing it at about 1 billion pounds ($1.7 billion).

Gartmore and San Francisco-headquartered Hellman & Friedman, which backed a management buyout in 2006 that valued the firm at 550 million pounds, will raise as much as that amount in the first private equity IPO in Europe this year, and the first in the UK since 2007, according to data from the Centre for Management Buyout Research.

Gartmore plans to raise 250 million to 300 million pounds in new shares to cut net debt to about 150 million pounds, while private equity firm H&F and Gartmore employees could sell as much as 250 million pounds worth of existing shares, depending on investor demand, people familiar with the matter said.

Gartmore is looking for a free float of between 30 to 50 percent after a planned listing around Dec. 11, the people said.

H&F's stake will fall below a majority position from about 52 percent at present, a company spokeswoman said, although she declined to give further details.

Gartmore employees, who own the remainder of the company, are also poised for a payday as staff aim to sell around 20 percent of their overall holdings. The balance of the directors' and employees' shares are subject to staggered lock-in arrangements that expire in 2013.

Gartmore and bookrunners BofA Merrill Lynch (BAC.N), Morgan Stanley (MS.N) and UBS (UBSN.VX) are to set the terms of the IPO around the end of the month after testing investor appetite in a pre-marketing process started Friday.

RICH VALUATION?

Gartmore's funds under management were 21.8 billion pounds at the end of September, up 34 percent since February 2009 but still below the level of about 25 billion pounds in 2006.

The company had considered an IPO in 2007, which valued it at 1.5 billion pounds, but the plan was put on ice due to the financial crisis and in April, a senior Gartmore executive played down the likelihood of an IPO because of the state of the markets [ID:nLSI56350]

However, the recent surge in equity prices has reignited interest amongst private equity firms to list portfolio businesses.

At 1 billion pounds, Gartmore is valued at 4.6 percent of assets under management, above the 1 percent level at which Aberdeen Asset Management (ADN.L) is valued and 1.5 percent at Henderson Group (HGGH.L).

But Gartmore has 17 percent of its fund under management as hedge funds, which generate higher fees than traditional funds.

Gartmore CEO Jeff Meyer said in a conference call that H&F would keep its two representatives on the board after the flotation.

Private equity investors are showing signs they are ready to accept lower returns in exchange for getting some cash back when portfolio firms come to float in what could be a crowded market for new issues over the next year.

"We are a conservative firm, a firm which does not need leverage other than for the purpose of the buy-out and we thought it was an opportune time to de-lever," Meyer said.

Meyer said that although the IPO timetable was "not cast in stone", he expects it to go ahead by mid-December.

Gartmore generated 38.1 million pounds operating earnings on the back of 207.1 million pounds for the first nine months in 2009.

The firm will use the proceeds from the listing to pay down the debt taken on for the MBO and added to in a refinancing the following year. Net debt of some 400 million pounds at end-September 2009 will be cut to 150 million pounds, the company said. The debt does not come due until 2014.

Citi is acting as joint bookrunner and Fox-Pitt, Kelton is acting as co-lead Manager for the deal. (Editing by Joel Dimmock and Jon Loades-Carter) ($1=.6002 Pound)

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