By on March 16, 2012

An I.P.O for a physical product is a refreshing change from the Tech 2.0 bubble we’ve been subjected to lately. Allison Transmission, formerly of General Motors, just issued their first I.P.O, raising $600 million for the company. Allison is now valued at $4.2 billion.

Allison’s current owners, which include the Carlyle Group and Onex (both private equity firms), should reap a fairly decent return from the company, having only invested $1.5 billion on their own (the rest of the money was borrowed). The two firms purchased Allison in 2007. Shares are going for about $23 each, though that may change if the underwriters of the deal decide to issue more. As of 1 PM Friday, the stock was up 3.03 percent to $24.11.

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3 Comments on “Allison Transmission Raises $600 Million Via I.P.O....”

  • avatar

    In fact, the $600 million was not raised “for the company.” From the cover of the prospectus: “We will not receive any proceeds from the sale of shares held by the selling stockholders.” Other points from the prospectus that could be noted – total expenses to Allison for the offering are ~$6mm. They’ve also paid Carlyle and Onex ~$16mm to terminate the “services agreement” entered into in connection with the LBO.

  • avatar

    Let me get this right, GM was paid ca 5.6 G$, where only ca 1.6 G$ represented the companies value (the rest presumably was assumed debt and good will), and now it is worth 4.2 G$ …

    Perhaps the value of the company is greater, but for the original investors, aren’t hey are still like 500-800 M$ in the hole?

    • 0 avatar

      “aren’t hey are still like 500-800 M$ in the hole?”

      Assuming that this article is correct:

      -Investors put up $1.5 billion for (an implied) 100% of the equity.

      -Investors just sold about 14% for $600 million. That leaves them with 86% of the equity, which is valued as of now at about $3.8 billion. To breakeven on the original investment, they would have to sell that equity for $900 million, so it would seem that they are now ahead of the game.

      -Presumably, the approximately $4.1 billion in debt went to the company, not to the equity holders.

      If that is accurate, then all of the value has effectively been transferred to the equity holders, not to the enterprise. They levered into it, and now have started to cash out of it. It would behoove the investors to increase the company’s earnings in order to increase the value of their remaining stock. But if that effort is made and it fails, they’re still ahead of the game if they can cash out in time.

      Edit: According to Yahoo Finance, the PE ratio based upon a share price of $24.55 is about 44. In comparison, Magna is supposedly at about 11.5. Either the PE calculation is amiss (which is certainly possible), or else Alison had better build earnings in a big way, fast, in order to justify that pricing.

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