Generac Holdings (GNRC) IPOreport

COMMENTS

This deal is not so much about the company, it’s about a private equity investment gone sour because of too much borrowing and needing an IPO bailout to repay debt. And in the 2006 transaction there was a $150mm charge for ‘transaction-related’ expenses, so the private equity firm made a significant windfall going into the deal

Plus, this charge indicates a complete lack of judgement "As of October 31, 2008, as a result of our annual goodwill and trade names impairment test, we determined that an impairment of goodwill and trade names existed, and we recognized a non-cash charge of $583.5 million in 2008."

The idea of standby power generators seems attractive as a business. However, in a flat-line economy energy demand doesn’t increase, thereby damping the need for backup power systems – which provide insuarnce for the case of an energy demand overload (causing brownouts) in the power system, due to transmission congestion and/or overtaxed power plants

BUSINESS

A leading designer and manufacturer of a wide range of standby generators for the residential, industrial and commercial markets

STOCKHOLDERS

CCMP owns 85% pre-IPO

CCMP's founders have invested over $12 billion since 1984, which includes their activities at J.P. Morgan Partners, LLC (a private equity division of JPMorgan Chase & Co.) and its predecessor firms.

CCMP was formed in August 2006 when the buyout and growth equity investment professionals of J.P. Morgan Partners, LLC separated from JPMorgan Chase & Co. to commence operations as an independent firm

JPMorgan, of course, is a lead underwriter

USE OF $299 IPO PROCEEDS

Repay debt

 

Generac Holdings (GNRC)	GNRC, C, 6					Post-IPO share: 67mm
Generators
Waukesha, WI	2006	2007	2008	'08 9mos	'09 9mos	IPO Mkt
Revenue ($mm)	$680	$556	$574	$402	$434	Cap (mm)
Gross profit %	38%	40%	35%	36%	40%	$1,072
Operating income %	25%	17%	23%	12%	16%	@$16
*for 2006, backed out $150mm (?) in 'transaction related expenses'
* for 2008 backout $583mm (?) in goodwill & name impairment charges
Interest exp % of adj Op inc	11%	132%	83%	170%	78%
Profit (loss)	-$3	-$10	-$556	-$40	$31
Profit (loss) % of revenue	0%	-2%	-97%	-10%	7%
Adjusted EBITDA % of Rev	28%	28%	23%	23%	26%
VALUATION RATIOS	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Generac Hldigs (GNRC)	$1,072	1.9	16	2.6	-2.1	30%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	1	2	1	6