iSelect raises A$215m in its ASX IPO at 24.5*CY13 NPAT, but drops 15.7% on Day 1

25th June 2013. Health Insurance online comparison website iSelect (ASX:ISU) listed on the Australian Stock Exchange yesterday, in a A$215m IPO, but dropped 15.7% by the close of day 1. The stock’s fall, from $1.85 per share to a close of $1.56, took place against a wider share market fall of 1.47%.

The company raised $215.4 million through the issue or sale of 116.4 million ordinary, fully-paid shares at $1.85, for a market capitalisation at listing of A$479.3m, or 25.4 times CY13 NPAT, and 13.1 times EBITDA. Of the money raised, iSelect will receive net proceeds of A$88.1m, the issue of the new shares cost A$11.9m, Ninemsn, which sold its entire stake of 62.35m shares receives A$113.5m, and A$1.2m covers the cost of the sale of the Ninenmsn shares.

Ninemsn became a 30% shareholder in iSelect after making a A$20m investment in the business in 2006. Originally a 35% shareholder, this diluted when Spectrum Equity spent A$30m to acquire 10.2%  of iSelect in 2011. Ninemsn is now part of the broader Mi9 group of companies, and is 50% owned by Microsoft and 50% by Nine Entertainment Co. Nine Entertainment Co is majority owned by private equity firm CVC Asia Pacific Limited.

iSelect operates a comparison website which compares the cost of products such as health insurance, along with other insurance products such as life and car insurers, along with some lending products and utilities such as electricity and telephones. It collects commissions for products sold through the website. iSelect is Australia’s most visited online comparison service, with 7.8m total visits to its websites in the year to 31st March 2013. In FY12 it derived 81% of its revenue from the sale of private health insurance policies, with 89% of this coming from its top 5 product providers.

Some analysists considered the float price was set high. Crikey.com.au said “Despite the slow growth and competition risks, the valuation range published by co-lead manager of iSelect’s float, Credit Suisse, is $414 million to $511 million for the young company, representing a lofty earnings multiple of more than 20 and an enterprise value to EBITDA multiple of between 11 and 14. This sky-high valuation puts the slow growing iSelect on par with some of Australia’s best tech businesses, like Seek and Wotif”.

In addition, in the last 12 months, iSelect’s growth had slowed (a 10% increase in earnings last year to A$26m) and not all health insurance providers have agreed to be on the site, including BUPA and Medibank which account for 60% of policies written.

According to the Australian Financial Review (“AFR”), the IPO market window was “slammed shut” by the iSelect IPO fall, which it put down to “the lack of secondary market support at the $1.85 issue price amid concerns about the rigidity of the company’s earnings forecasts.” It understood shareholder Spectrum Equity to have offloaded part of its stake as soon as the company listed.

In May, the AFR described IPO conditions as “near perfect” with the market up 30% over 12 months and investors averse to the resources sector looking for opportunities. The 16th May $450m IPO of fertility services company Virtus Health was seven times oversubscribed, and the stock jumped 9% on its debut. Since then broader market sentiment has weakened due to concerns about the China market, the sudden fall in the Australian dollar and concern the US Federal Reserve would wind back its money printing.

Executive chairman and co-founder of iSelect Damien Waller remains a major shareholder with a 12.11% stake. He said the successful completion of the group’s IPO was a major milestone.

“Since I co-founded iSelect 13 years ago, we have grown from a small business that offered comparison of private health insurance products, into an established company offering comparison services across a range of additional categories, including life insurance, car insurance, home loans, broadband, energy and personal financial products,” he said. “In the process we have evolved to become a leading online comparison service and today, an ASX-listed company. We see a great deal of opportunity and growth ahead of us and what draws the iSelect team together is our shared commitment to innovation, customer service, and growth. The IPO was the culmination of a lot of hard work and dedication from the 430-strong iSelect team”.

Other shareholders include include US-based private equity fund Spectrum with a 7.6%e and Melbourne-based VC fund Starfish Ventures with over 2%. A private investment company linked with Computershare founder Chris Morris has more than 2.58 million shares and a funds arm linked to AMP has more than 3.74 million shares.

The company recorded A$111.9m of consolidated revenue during FY2012, and $24.1m of earnings before interest, taxes, depreciation and amortisation (EBITDA). It forecast EBITDA of A$30m for calendar year 2013.

Financial adviser to the IPO was Credit Suisse, and the joint lead managers were Credit Suisse and Baillieu Holst. Legal advisers were Gilbert and Tobin.

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