NEW YORK (Reuters) – Avago Technologies Ltd priced shares in its initial public offering at the top of the estimate range and sold 20 percent more than expected in an IPO that may give rise to further offerings by private equity backed companies.
Avago, a Singapore-based designer of analog semiconductor devices, said it sold 43.2 million shares for $15 each.
The IPO’s proceeds of $648 million make it the second largest deal in the United States so far in 2009 after the $828 million stock flotation of infant nutrition maker Mead Johnson Nutrition Co (MJN.N) in February.
Avago, partly owned by private-equity firms Silver Lake Management Company and Kohlberg Kravis & Roberts & Co [KKR.UL], had expected to sell 36 million shares for between $13 and $15 each, according to a recent regulatory filing.
The chipmaker, which was spun off by Hewlett Packard (HPQ.N) in 1999 under the name “Agilent Technologies Inc” in a $2.1 billion IPO then bought out by a group of private equity firms in 2005, has a debt load of $704 million.
The company said in a recent regulatory filing it planned to use about 45 percent of its share of the IPO’s proceeds to pay down its debt.
But the size and pricing of the deal may lead to private equity firms unloading more of their portfolio companies.
Private equity firms buy companies with the view of exiting investments several years later, either by selling it or taking it public.
Another KKR-sponsored company, discount retailer Dollar General, is in the advanced stages of preparation for a possible IPO later this year, a source told Reuters this week.
“With the increase in the size of the offering, it seemingly puts to rest the thinking that a private equity firm such as KKR would struggle in placing a deal with a huge debtload and erratic financials,” said Scott Sweet, a senior managing director with advisory firm IPO Boutique.
Avago, which said it holds 5,000 patents, saw revenues fall 14.8 percent to $693 million in the six months ended in May 2009 compared to a year earlier, according to a regulatory filing.
But it may have benefited from the recent rally in semiconductor stocks: the PHLX Semiconductor Index .SOXX has jumped 60.8 percent since lows hit in early March.
About half of the shares offered in the IPO are held by existing shareholders, and the other half by Avago itself.
The lead underwriters, led by Deutsche Bank Securities, Barclays Capital, Morgan Stanley and Citi, have the option to buy up to another 6.48 million shares to cover over-allotments.
Avago’s shares are set to begin trading on Nasdaq on Thursday under the symbol “AVGO.” (Reporting by Phil Wahba, additional reporting by Megan Davies; Editing by David Gregorio, Bernard Orr)