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Lone Star return seen nearly 1.7x with Foundation Building IPO

Lone Star Funds stands to make a near 1.7x return when Foundation Building Materials goes public next week.

Foundation Building, the Tustin, California, distributor of wallboard and suspended ceiling materials in the U.S. and Canada, is expected to price its IPO on Feb. 9 and trade the next day, a source said.

The company is offering 12.8 million shares at $17 to $19 each. Lone Star is providing another 1.92 million for underwriters to buy through an over-allotment option (the greenshoe), a Jan. 31 SEC filing said.

For 2015’s first nine months, Foundation Building’s net sales rose about 7 percent to $1.41 billion from $1.32 billion in the year-earlier period.

Lone Star Funds, a private equity firm that invests in real estate, equity, credit and other assets, has more than $70 billion in aggregate capital commitments.

The firm acquired Foundation Building in October 2015 for about $560 million from CI Capital Partners. Lone Star invested $255 million equity, Moody’s said at the time. The investment came from Lone Star Fund IX LP, which collected $7.4 billion in 2014. Lone Star’s 10th fund closed at about $5.5 billion last year.

In May, Foundation Building bought Ken Builders Supply for $37.4 million and Kent Gypsum Supply for $19.6 million, filings said. The firm acquired Winroc  for $314.1 million in August. Lone Star injected another $65 million equity, the SEC filing said.

Foundation Building doesn’t appear to have paid out any dividends. In all, Lone Star looks as though it has invested $320 million equity in Foundation Building.

Lone Star owns 100 percent of Foundation Building before the IPO. The holding will fall to 65.6 percent, or 28.05 million shares, after the IPO.

PE firms typically don’t sell shares in IPOs of their portfolio companies. Lone Star is offering 1.92 million shares as part of the greenshoe. At $18 a share, the midpoint of the IPO range, the transaction would be valued at $34.6 million. Lone Star’s remaining stake of 28 million shares would be valued at about $505 million.

Including paper gains and the shares offered in the greenshoe, Lone Star stands to make 1.68x its money.

Executives for Lone Star declined comment. Foundation could not be reached for comment.

Action Item: Contact Foundation CEO Ruben Mendoza at +1 714-380-3127

Photo courtesy ©iStock/justnartist