THL to make more than 2x on Ceridian HCM IPO

After nearly 11 years, Thomas H. Lee Partners will at least double its money with the initial public offering of Ceridian HCM.

Ceridian HCM went public on April 26. The company raised $462 million after selling 21 million shares at $22 each, above its $19 to $21 price range. Ceridian opened for trade on both New York Stock Exchange and Toronto Stock Exchange under the ticker CDAY.

Ceridian shares surged 42 percent, or $9.21, to $31.21.

Ceridian, Minneapolis, produces human-capital-management software. Its flagship product, the Dayforce platform, provides HR, payroll, benefits, workforce and talent-management technology. Revenue for 2017 rose 8 percent to $750.7 million from $693.9 million in 2015. Losses narrowed to $9.2 million in 2017 from $104.7 million in 2015.

Ceridian HCM has about $1.1 billion in long-term debt, a regulatory filing said.

THL’s investment in Ceridian dates to November 2007 when the PE firm and Fidelity National Financial Ventures acquired it for $5.2 billion, including $3.7 billion in debt. THL and Fidelity injected $1.5 billion equity into the deal, a source said.

The buyout shop’s investment came from its 2006 flagship fund, Thomas H. Lee Equity Fund VI LP, which raised $8.1 billion. THL is fundraising for its eighth flagship, which is seeking $3 billion, the Wall Street Journal reported.

Ceridian split in two in October 2013. The payments business was called Comdata, while the human-capital unit went to Ceridian HCM. Comdata confidentially filed to go public the following April, and in November 2014, FleetCor acquired the payments company for about $3.45 billion. The deal included $1 billion of FleetCor stock, which the investors sold for $1.2 billion, a source said.

Ceridian LLC, the parent, used proceeds of the Comdata sale to pay debt but retained about $1.1 billion in Ceridian HCM loans.

In 2016, Ceridian received another $150 million from investors including THL, Fidelity and management. (To further complicate the issue, Fidelity National Financial Ventures was spun off from the parent in late 2017 and changed its name to Cannae Holdings.)

Private equity firms typically do not sell shares of their portfolio companies when they go public. They usually divest the stock over several quarters once the lockup period expires.

THL, however, is adding shares of Ceridian. THL/Cannae agreed to buy $100 million of Ceridian stock once the IPO closes. Dragoneer Investment Group is also buying up to $75 million of Ceridian stock at the IPO price, a regulatory filing said.

Currently, THL owns about 67.7 million shares, or 62.1 percent, of Ceridian. That will jump to about 70.8 million shares, or 51.3 percent, after the IPO (assuming the green shoe is exercised). At $31.21 a share, THL’s stake in Ceridian is worth about $2.2 billion.

Cannae, meanwhile, is also adding shares. Its holding will stand at 37.7 million shares, or 27.3 percent, after the IPO, the regulatory filing said.

The company has a market cap of more than $4 billion. Including the $3.7 billion realized from Comdata, the two businesses are valued at around $8 billion. This means THL stands to make more than 2x its money on Ceridian, the source said.

THL, one of the oldest PE firms, was founded in 1974 and has invested in companies including Party CityMoneyGram and, more recently, High Tower Advisors.

Executives for THL declined comment. Cannae and Ceridian could not be reached for comment.

Action Item: Call Ceridian CEO David Ossip at +1 952-853-8100

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