Vertiv aims for S-1 by year-end, on the back of strong 1Q19 earnings

Vertiv aims to file an S-1 with the Securities and Exchange Commission before the end of the year, said two sources familiar with the matter.

With global trade tensions rising, though, some investors caution that the electrical equipment manufacturer may not be able to achieve the valuation it wants if it seeks to IPO in the near term. Indeed, the company’s bonds have softened over the last month amid rising concerns that trade rhetoric between the US and China could lead to more tariffs on companies like Vertiv, which sells its products in the Chinese market, they added.

The trading activity resulted in the bonds retracing gains they made after Vertiv reported 1Q19 earnings last month. The USD 750m 9.25% senior unsecured notes due 2024 last traded on 11 June at 96.75 to yield 10.045%, down from post-earnings levels of 99–100 in mid-May, according to MarketAxess.

The bonds initially got a bump from 96.75 after Vertiv reported USD 110m in adjusted EBITDA in 1Q19, a 31% increase from 1Q18. Revenue increased 12% year-over-year to USD 1.055bn from the corresponding period last year, the sources said.

Leverage at quarter-end totaled 6.6x, based on USD 3.505bn of total debt and USD 528m of LTM adjusted EBITDA, which includes USD 235m of addbacks.

Vertiv was spun off from Emerson Electric in 2016 to Platinum Equity in a deal valued at USD 4bn. Platinum put in USD 1.2bn at the time, according to deal documents. Since then, Vertiv has paid two dividends and today Platinum has recouped all but roughly USD 200m–USD 300m of its equity investment, as reported.

The first dividend came less than a year after the buyout when Vertiv priced a USD 500m 12% holdco PIK toggle notes due 2022 at a 98 OID for a 12.55% all-in yield — downsized from USD 600m at launch. Proceeds paid an estimated USD 400m dividend and repaid about USD 75m of bank debt. And in July 2017 Vertiv used asset sale proceeds for a mix of sponsor distribution and debt paydown.

The PIK toggle note traded at 97 to yield 13.342% on 4 June, down from trades at 98-99 immediately after the earnings, a trader said.

Since the buyout, investors have kept watch on the company’s earnings quality, given the volume of addbacks and cost savings baked in, the sources said. “The earnings overall have gotten better, but what’s more important is the addbacks. This quarter wasn’t bad for the addbacks, so maybe the company is actually turning around, but only time will tell,” one of the sources said.

Still, the timing of an IPO could impact its initial valuation. “It seems like the company is finally turning things around after the buyout, but with everything happening on the macro scale, I’m not entirely sure if an IPO is going to happen how and when the company wants it to,” one of the sources said.

Last year, Reuters reported the company was exploring a sale or an IPO and targeting a valuation around USD 6bn.

As of 31 March, Vertiv’s liquidity totaled USD 350.5m through USD 110.5m of cash and USD 240m of revolver availability.

Vertiv did not respond to a request for comment.

2019 Debtwire

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