Widespread rumours across the weekend press suggest that banking and finance software supplier Misys has cut its IPO valuation by as much as a third. This does not surprise us. When we looked at the story 10 days ago (read here) we explained that the then speculated 'enterprise value of around £6bn to £6.5bn and a market cap of £5bn to £5.5bn is on the cards.'
We added that 'this implies a whopping EV/EBITDA forward multiple of around 22-times, or a current year of just under 20.'
Private equity parent Vista has clearly had its advisers sound out potential investors, and sums have been rebased, perhaps as low as a £3.5bn market value. Weak IPO markets across Europe are thought to be the chief reason that investors have pushed for a valuation rethink.
But there's another reason. It's becoming apparent that Vista does not seem to have a Plan B to fall back on, a trade sale for example. If that's right, Vista has come to the IPO table with a weakish hand, and had its bluff called.
'At such a punchy multiple, Misys’s IPO was always going to need a fair wind in the markets to get done,' says Ian Spence, founder and chief analyst at IT analysis boutique Megabuyte. But Spence also sees a bright side here, for all concerned.
'While Vista will take a haircut on realising about a quarter of its stake, it will retain 75%, which it can release over the coming years into what we hope will be a rising share price, given the more modest IPO valuation,' he points out.
This has worked well before, perhaps most notably for private equity investors in legacy IT systems specialist Micro Focus (MCRO) (read about the company here), both following is own 2005 IPO, and again after the $2.35bn acquisition of Attachmate in 2014.
'A high profile IPO at an excessive valuation that drops to a discount does no favours for the company nor the wider market,' concludes Spence.
