As some of Wall Street flees from risk, some investors may be ready to embrace the coming initial public offering RiskMetrics Group Inc. The New York-based firm, which advises thousands of companies on how to measure and navigate a broad range of risks could raise up to $266 million in its IPO next week when it will be one of four offerings vying for investor interest.
"Given the climate of the market, RiskMetrics is obviously a very timely corporate service," said Linda Killian, portfolio manager of the IPO Plus Fund, a mutual fund advised by Greenwich, Connecticut-based Renaissance Capital.
RiskMetrics advises companies on market, credit, portfolio, governance, accounting, legal and environmental risks, something in high demand as corporations navigate tighter credit markets, and more volatile investment markets. That seems a good match with the tenor of the times. In recent weeks, financial firms including Merrill Lynch & Co, Morgan Stanley and UBS have announced plans to scale back on risk exposure.
If all goes as planned, the offering will give the 2008 IPO market a much needed boost after things got off to a sputtering start this week with only one of three planned offerings - Williams Pipeline Partners - making it to market. "When the market has a shakeout like this it is only the ones that are priced well that will go," said Killian, of increasingly picky IPO investors.
Investors have been spooked by a sharp decline in US stock markets since the beginning of the year. The Dow Jones Industrial Average, for example, is down nearly 9 percent since the beginning of the year. Despite investors tightening their purse strings, RiskMetrics is likely to win investor attention, analysts said.
"RiskMetrics has a lot better growth," said Killian, than some of the other offerings on the IPO calendar. RiskMetrics saw a 56 percent surge in revenue during the first nine months of 2007 to $172.7 million, helped by its acquisition of proxy advisory firm Institutional Shareholder Services (ISS) a year ago.
By contrast, Cascal BV, a British company that operates water and wastewater services in eight countries and is also due to sell shares to the public next week, saw 10 percent revenue growth in fiscal 2007.
ISS, a firm influential with big investors that depend on it to advise it on shareholder votes, accounted for $85 million, or about half of the company's total revenue, according to the company's amended registration statement with the US Securities and Exchange Commission.
RiskMetrics is launching its public offering a decade after being spun off by J.P. Morgan Chase & Co It plans to sell 14 million shares at a price between $17 and $19, and list its shares on the New York Stock Exchange under the stock symbol "RMG."
Demand for its services picked up through the first nine months of last year, with subscriber renewals of about 90 percent. Business was less robust in 2006, when only 3 out of every 4 subscribers renewed contracts. RiskMetrics accrued $425 million in debt to buy ISS, and saw its profit fall by 90 percent drop in the period to $1.2 million.
The company plans to use offering proceeds to pay down $125 million of debt incurred in the ISS deal. "It should do well given the niche that they serve," said Scott Sweet, managing director of research firm IPOboutique.com, of RiskMetrics' offering.
Assuming RiskMetrics' IPO fetches $18 a share, the midpoint of its forecast range, it would have an annualised price-to-sales ratio of 4. That values it a little higher than some others in its sector.
DST Systems, which offers similar services, is trading at a multiple about two times to sales, according to Reuters Data. RiskMetrics' IPO is being underwritten by Credit Suisse, Goldman Sachs & Co, Bank of America, Citi, Merrill Lynch and Morgan Stanley, who have the option to purchase an additional 2.1 million shares to cover overallotments.
Comments
Comments are closed.