This year, the rare PE-backed IPOs have come from the middle markets (Bridgepoint Education, Rosetta Stone), even though it’s the mega-buyouts that need them most. With portfolio company valuations starting at $5 billion, an IPO is often a mega-firm’s only way out.
If any PE-backed company is positioned to go public, it’s KKR’s discount retailer, Dollar General. Speculation on the transaction began in January, when Breakingviews argued that the company was worth $7.5 billion (minting KKR better than a 33% return, according to the story).
Last week, M&A newswire mergermarket reported that Dollar General retained JPMorgan and Credit Suisse for the transaction. Citing anonymous sources, the news service wrote that a prospectus filing is “imminent.” The choice of underwriters is curious since Goldman Sachs, Lehman Brothers, Citigroup and Wachovia acted as debt providers and advisors on Dollar General’s take-private.
The speculation continues. This morning, Slate published a story called “The Almighty Dollar (Store),” which notes that Dollar General is the only one of the KKR’s 2007 mega-deals that’s in the black. After describing the company’s growing same-store sales (by 13% in Q1) and rising gross profits (up 5% over last year), and expansion plans (450 new stores this year), the story concludes with more IPO speculation. From Slate:
The run of good results may have set the stage for an event that has become as rare as a Wall Street banker picking up detergent at a Dollar General: an initial public offering.
If it’s true, KKR should act fast. Not only is the window for IPO enthusiasm unsteady at best, but the entire process typically takes months. By the time the IPO actually floats in two to three quarters from now (assuming there is one already in the works), the economy could be on its way to recovery. The minute consumers start trading up again, Dollar General’s precious double-digit same store sales growth will begin to shrink.
I called JPMorgan and KKR and will update if they provide a comment.