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By Anthony Hughes
NEW YORK, Jan 18 (IFR) - Home security company ADT was headed Thursday for a somewhat disappointing IPO likely to fall roughly 20% short of the US$2.1bn sum it hoped to raise from investors.
One banker close to the deal said underwriters told investors the deal would likely price around US$14 per share, well below the US$17-$19 range at which the IPO was marketed.
"The company is disappointed with the price," the banker told IFR. "But my assumption is that they will take that."
Private equity giant Apollo Global Management bought ADT via a US$6.9bn leveraged buyout in 2016.
While Apollo is not selling any of its shares in the IPO, ADT is selling 111.1m new shares and planning to use the deal proceeds of up to $2.1bn to reduce its debt.
At the lower price of US$14 per share, the proceeds would fall to around US$1.55bn.
"A lot of accounts are responding very positively to that price," the banker said. "We have a book that is well oversubscribed at that level."
Morgan Stanley and Goldman Sachs are leading the underwriting syndicate. The IPO is expected to price after the market close on Thursday.
The IPO would allow Apollo to sell its investment in the company through future sales of ADT shares.
Bankers have been expecting IPO investors to be price-sensitive in 2018, with the US stock market trading at record highs and lifting the price of comparable companies against which IPOs are valued.
In the case of ADT, it is understood some investors took issue with the company's calculation of adjusted Ebitda, particularly the treatment of capital expenditure.
Based on midpoint pricing and ADT's 2017 adjusted Ebitda of US$2.32bn-$2.37bn, ADT was seeking a valuation of a little under 10 times enterprise value-to-Ebitda.
During the roadshow for the IPO, ADT management described the company as "recession-proof" with high margins and low working capital and maintenance capital requirements.
Its main use of capex is for the installation of security systems for new customers.
A key focus of the roadshow was the reduction in customer attrition since Apollo took control, with every 100 basis point improvement adding US$100m to cashflow.
"Apollo just bought this business a year-and-a-half ago and they are trying to change so much, so quickly," said one hedge-fund investor. "It's tricky."
ADT is the US's largest provider of home security monitoring but is facing growing competition from monitoring apps that work directly on smartphones and other personal devices.
Even at the lower valuation, the IPO is likely to be one of the largest in the first part of 2018. ADT is scheduled to begin trading on the New York Stock Exchange on Friday. (Reporting by Anthony Hughes; Editing by Marc Carnegie)