Five reasons not to buy into Merlin Entertainments IPO?

Thrugelmir

blinko wrote: »

but just as great as it's ability to generate cash is so its debt sucks,

There's sizable discounting these days with two for one tickets etc. As RyanAir have shown this year. You can pare your costs to the bone , offer cheap flights. Yet still have overcapacity which results in 90 expensive leased aircraft sitting on the tarmac this winter. Likewise Merlin may find consumers spending less when on site. Which will drop through to the bottom line like a stone.

blinko

Thrugelmir wrote: »

There's sizable discounting these days with two for one tickets etc. As RyanAir have shown this year. You can pare your costs to the bone , offer cheap flights. Yet still have overcapacity which results in 90 expensive leased aircraft sitting on the tarmac this winter. Likewise Merlin may find consumers spending less when on site. Which will drop through to the bottom line like a stone.

that's where they have done well to diversify



At the moment, 20 per cent of sales come from North America and 14 per cent from Asia, with the rest coming from Europe, mainly Britain.
Merlin boss Nick Varney wants to increase turnover from outside the European Union significantly, so that the group will derive a third of its sales from Asia, a third from America and a third from Europe.


In terms of management a great business will do well even if they management are poor (although over time it will fall) a great management team at a bad business will ultimately fail. So what about a great management team at a great business..... thats another thing that I like about Merlin is stable and reputable management, which when coupled with a good business is a winning result.

article with target of 360p
http://uk.reuters.com/article/2013/11/06/merlin-ipo-idUKL5N0IR2BV20131106

http://www.investorschronicle.co.uk/2013/11/06/shares/news-and-analysis/merlin-could-offer-short-term-upside-oyzOuo905xWnYtlVM9FdaN/article.html

racing_blue

I like the brands and think they will have enduring appeal to families worldwide. The leases on the sites sold in 2007 such as Alton Towers have 30 years to run which feels long enough not to worry me.

While I think the price:book ratio is projected to be about 4:1 (net assets of £800m and projected market cap of £3.1 bn), growth especially in Asia Pacific has been accelerating as detailed on page 49 of prospectus.

The main question in my mind: why IPO now? Here is what the prospectus has to say:

"The Directors believe that the Global Offer and Admission will position the Group for its next stage of development, including by further raising the profile of the Group, assisting in retaining and incentivising employees and providing it with a structure for future growth.

The Group expects to receive approximately £200 million from the subscription of New Shares in the Global Offer before estimated underwriting commissions and other fees, taxes and expenses incurred in connection with the Global Offer of approximately £35 million. As a result, the Company expects to receive net proceeds of £165 million from the Global Offer."

"Through the sale of Existing Shares pursuant to the Global Offer, the
Company expects the Selling Shareholders to raise in aggregate
approximately £573 million"

"The Directors intend to use the net proceeds of the Global Offer as
follows:
• £130 million to reduce net indebtedness owing under the Restated Facilities Agreement;
• £35 million to offset costs associated with restructuring interest rate swaps after 29 June 2013; and
• the balance (if any) for general corporate purposes."

The Global Offer will also provide (i) the Major Shareholders, the
Executive Management Beneficial Shareholders and certain of the Small Beneficial Shareholders with a partial realisation of their investment in the Group and (ii) the remainder of the Small Beneficial Shareholders with a full realisation of their investment in the Group."

Does anyone else thinks that sounds fair enough? At the moment I am in for £5k in my SIPP

srcandas

racing_blue wrote: »

Does anyone else thinks that sounds fair enough? At the moment I am in for £5k in my SIPP

The thing about going to the market is the business comes under much greater scrutiny and has to report any sneezes. So I think it sounds fair enough.

The advantages of a listing are of course prestige, often cheaper borrowings, the ability to raise capital, and liquidity of shares.

As the world starts to see growth again, especially in the UK and US, and with noises that China and Japan are determined to be on the world stage, I think the timing couldn't be better. But of course the risk is if the public's spending power doesn't move along with the growth or if there is another major hiccup. But that said a listed company has a much better chance of riding downturns.

The other risk is if say a big ride goes wrong a kills a few punters

Whether I'll dump on a quick gain depends to some degree on how many shares I get. I assume if it is over subscribed they will ration across all small investors ? But I'd want 15% clear to dump

But good luck one and all :beer:

blinko

http://www.fool.co.uk/news/investing/investing-strategy/2013/11/06/will-merlin-entertainments-ipo-have-the-same-success-as-royal-mails.aspx

http://www.bbc.co.uk/mediacentre/worldwide/161013cbeebies.html

Wise_Investor_2

Looks like all 'analysts' are sitting on the fence with this one. They are even drawing comparisons to Royal Mail to make headlines!

Update: Numis says could be worth 360p per share and they aren't involved with float (http://www.investoo.co.uk/merlin-entertainment-shares-to-be-priced-in-top-half-of-range/).

If at 330p, 360p could produce a nice short-term gain but not Royal Mail style!

blinko

https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CEwQqQIwAA&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F0c661804-46e1-11e3-9c1b-00144feabdc0.html&ei=YX96UqPXF7CR7AaXuICYBA&usg=AFQjCNF_OuybTfAZL2I2kmlXu3TEwpHtuA&sig2=g-BWJgefERCh06NtPoG6aQ

Thrugelmir

racing_blue wrote: »

The Global Offer will also provide (i) the Major Shareholders, the
Executive Management Beneficial Shareholders and certain of the Small Beneficial Shareholders with a partial realisation of their investment in the Group and (ii) the remainder of the Small Beneficial Shareholders with a full realisation of their investment in the Group."

Existing shareholders are looking to walk away with a cool £600 million..........

racing_blue

Thrugelmir wrote: »

Existing shareholders are looking to walk away with a cool £600 million..........

They would be realising 25% of the value of their investment at this stage. My understanding is that under the terms of the IPO they are not be able to sell more for another 180 days, and so will continue to own the majority of Merlin.

So, I wouldn't quite call it walking away, although I understand what you mean- the existing owners are looking to crystalise some value at this stage which maybe gives pause for thought?

srcandas

Not sure we should be concerned about early high risk investors realising some profits. If I had invested and over a fair period of time had accumulated a good profit would I not do exactly the same?

And if my strategy is to find smaller private companies, build them up, and create listed companies why would I want to change my strategy and become a plc investor?

Surely I would want to do the same again and to do that I'd need some capital back

ps: that Cbeebies thing seems a good development move. Bet little kids will be pestering their parents to go to that :cool: