Tuesday, August 17, 2010

PEU's Ring Multiple Registers on Nielsen

The Carlyle Group, Kohlberg Kravis Roberts, Blackstone, Hellman & Friedman, AlpInvest Partners, Thomas H. Lee Partners and Centerview Partners will take Nielsen public in a $2 billion offering. The S-1 filing reveals interesting information. While other journalists point out executive compensation, I'll focus on a few key facts and how private equity underwriters (PEU's) plan to profit.

1. Since taking Nielsen private in 2006 the company has not had a profitable year.

At December 31, 2009 and 2008, the Company had net operating loss carryforwards of approximately $1,588 million and $1,679 million, respectively, which will begin to expire in 2010, of which approximately $993 million relates to the U.S.

2. PEU sponsors loaded Nielsen with debt, over $8.5 billion. Their $14.6 billion balance sheet has $7 billion in goodwill.

The fair value of Nielsen's debt was 68 cents on the dollar in 2008. It rebounded to 96 to 97 cents on the dollar for 2009-2010.

3. Nielsen paid its sponsors $47 million in management/advisory fees from 2006 through the first half of 2010.

4. Nielsen paid out $220 million in severance costs for jobs terminated from 2007-2009.

Company continues to execute cost-reduction programs by streamlining and centralizing corporate, operational and information technology functions, leveraging global procurement, consolidating real estate, and expanding, outsourcing or off shoring certain other operational and production processes.

5. The company holds $117 million in derivatives, specifically interest rate swaps.

They expect to recognize approximately $60 million of pre-tax losses from accumulated other comprehensive loss to interest expense in the next 12 months associated with its interest-related derivative financial instruments.

6. Sponsors will receive $103 million in proceeds from the IPO (in connection with the termination of management/advisory agreements).

7. $1.56 billion IPO proceeds will be used to buy back $1.47 billion of outstanding debt. That's 106 cents on the dollar. Much of the debt is held by PEU sponsors.

At June 30, 2010, $527 million of the senior secured credit facilities and $22 million of senior debenture loans were held by the Sponsors and their affiliates. Of the $549 million of debt held by the Sponsors and their affiliates, Kohlberg Kravis Roberts & Co. and their affiliates held $236 million, The Blackstone Group and their affiliates held $198 million and The Carlyle Group and their affiliates held $115 million.

85% of sponsor held debt was purchased in 2008, a time of deep discounting.

PEU's have multiple ways of cashing in on affiliates. Nielsen's register ringing will be heard throughout the world.

Update 3-10-13:  Oddly, Nielsen is selling its Expo Business, likely to a PEU buyer.