Neopost IPO Marks French Market Milestone –

Last month’s initial public offering of Neopost on the Paris exchange marked an important step forward for France’s LBO market. It was the first time a large buyout was floated on the country’s main market, thereby enabling its private equity backers to exit a significant portion of their investment.

Market observers suggest that BC Partners funds, which owned 70% of Neopost before the IPO and still retain a minority stake, realized around five times their investment at cost.

France, to date, has seen relatively few buyout IPOs, while the majority of LBOs that have gone public have opted for the less liquid Second Marche rather than the main Paris exchange.

The Neopost IPO took place some 16 months after BC Partners funds acquired the mailroom equipment group from its previous shareholders, Fonds Partenaires and Gas et Eaux, reportedly for FFr 3.5 billion ($581 million).

Warburg Dillon Read, global coordinator for the Neopost offering, proposed an initial share price range of euro 18.5 to euro 23.5 for the 62% of the company being offered. This would have valued the company at approximately euro 600 million. However, halfway through the production of the book, following consultation with the Comiti des Operations de Bourse (COB), the range was narrowed to euro 19.5 to euro 22.5 per share.

The offer ended up being oversubscribed at euro 19.5 million, but according to BC Partners’ Raymond Svider, “BC Partners, Warburg and Neopost itself took the view that the quality of demand did not allow for an appropriate allocation of shares.”

Therefore, the sellers reduced the size of the offering to 51% of the company’s equity-of which 26.3% would come from the holdings of BC Partners’ funds-and set a new price of euro 15 per share. At this price, the offer was twice oversubscribed and ultimately gave Neopost a market capitalization of euro 451 million.

The offering comprised a primary tranche of 5 million shares, the proceeds of which will partly go to reduce Neopost’s debt, and a 10.5 million share secondary tranche sold by management and Credit Lyonnais alongside BC Partners.

Speaking for BC Partners, Mr. Svider said, “At the IPO price, Neopost has generated an excellent return,” but declined to comment more specifically.

Market observers suggest that BC Partners funds, which owned 70% of Neopost before the IPO and still retain a minority stake, realized around five times their investment at cost. Mr. Svider said the investment generated solid returns but declined to disclose specifics.

Neopost, which ranks second in the world mailroom equipment market, in 1997 made earnings before interest and tax of FFr 447 million on sales of FFr 2.4 billion; export sales account for 62% of earnings.

The secondary buyout of Neopost in the autumn of 1997 was itself a groundbreaking deal, featuring a FFr 500 million high-yield note underwritten by Morgan Stanley. Unlike the high-yield paper used in other continental buyouts, this instrument was a floating-rate note; it also was the first Franc-denominated high-yield note used in a French buyout, and featured a prepayment facility starting in year two. Neopost has elected not to prepay the note on flotation, Mr. Svider said.