Don't say the market is unkind to Goldman. First the firm's employees are about to rake in all time record bonuses. Then, courtesy of of a rocking bear market rally, top-tick Goldman is about to get the hell out of dodge in another GS Capital Partners LBO, Adesa, basically a vehicle auction firm, which the firm bought in conjunction with Kelso in 2006. And who gets to pocket the underwriting fee? Why, Goldman. No way is the squid going to let any capital leave the firm. As for the company: prepare to own a 10x EV/EBITDA Craigslist knock off which will spew $100 million in free cash flow on a good year (and with consumers waiting for Cash for Clunkers 2 thru 100, don't expect a whole lot of car auction activity any time soon).
In an amended S-1 filed earlier, KAR Holdings (the HoldCo for Adesa) disclosed the details of its upcoming IPO. The company, with Goldman as lead left underwriter (and with upcoming Buy recommendations to follow the IPO courtesy of 10 co-managers to secure an even better price for Goldman to dump remaining shares), will sell 23 million shares between $15 and $17/share.
More details from the red's Use of Proceeds:
We intend to use $276.8 million of the net proceeds from this offering to repay and/or repurchase amounts under one or more of our senior subordinated notes, fixed senior notes and floating senior notes, which may include a tender offer for cash or the redemption of notes pursuant to the optional redemption provisions described under “Description of Certain Indebtedness — Senior Notes — Optional Redemption” and “Description of Certain Indebtedness — Senior Subordinated Notes — Optional Redemption.”
We also intend to use $64.1 million of the net proceeds from this offering, together with approximately $200 million of cash on hand, to repay $250 million of outstanding borrowings under our senior secured term loan, which matures on October 19, 2013, pay $3.6 million of senior secured term loan amendment fees and pay $10.5 million of termination fees to our Equity Sponsors in connection with the termination of our financial advisory agreements with each of them. (more cha-ching for Goldman).
The firm reports $383.7 million of LTM EBITDA. Pro Forma debt will be $2 billion and the market cap at the mid point of the offering range will be another $2 billion (based on 130 million shares), for roughly $4 billion in EV. So 10x+ EV/EBITDA for what is a essentially commodity service. Throw in $120 million in CapEx and $150 million in interest expense and you have a barely positive $100 million FCF company, garnering a ludicrous #Ref FCF multiple. Sounds like another brilliant idea out of 85 Broad. The cost: sponsors put in $1.1 billion in a mix of cash and equity, acquiring the company for $2.7 billion. Not a bad return for three years.
Congratulations Goldman on pulling another fast one out of where the sun don't shine. Better hope that IPO window doesn't close again. Oh wait, you are the market - how could we have doubted you.