Morningstar Preview Can Hurt Nielsen IPO

The Nielsen IPO is finally upon us, but a nasty preview by Morningstar may weigh on the offering.

Nielsen Holdings (prospective ticker: NLSN) will try to float 71.4 m shares at $20-$22 next week. That's $1.5 billion, a rare event. How rare?

Last year, there were 153 IPOs, and only one — GM's $15.8 billion IPO — was over a billion.

If only the excitement level were as high as the deal value. Morningstar called the deal "fully priced in our view at roughly 13 times trailing twelve months EBITDA and 25 times trailing twelve months operating income."

Many private equity firms are involved in the deal — KKR, Carlyle Group, Blackstone, Thomas H. Lee (the company was bought out in 2006).

Morningstar hints the involvement of so many firms may be part of the problem. One is the debt load: $7.5 billion, thanks mostly to the 2006 buyout (with $650 million in annual debt payments!). Indeed, almost all of the proceeds will go to pay down debt.

The exception: management will collect $100 million in fees.

That's right. $100 million. In fees.

Then there's the issues of profitability. Visibility on future returns "looks quite murky" Morningstar notes and concludes: "...we have concerns that the firm's high financial leverage reduces its ability to invest in new business areas, a crucial mandate in a world increasingly driven by consumer use of developing technology for purchasing and entertainment."

They target an enterprise valuation of $14.8 billion, up slightly from the $13 billion valuation when the firm was taken private.

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