Nielsen clover no sure sign of more mega-LBO green

January 26, 2011

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Nielsen may be the market leader in gauging consumer behavior but shouldn’t be relied on as a bellwether of investor sentiment. The U.S. TV ratings giant overcame last year’s muted IPO market to pull off the first big successful sale of new stock in 2011. Private equity firms, and their investors, will be delighted with the $1.6 billion deal and hope it is a sign of things to come. But other similar-vintage mega-LBOs are far less appealing.

Even Nielsen isn’t exactly a prize. Rather than funding growth, the IPO proceeds will be used to pay off a slice of the $8.5 billion of debt that was larded on at the time of the 2006 buyout. Sales were flat in 2009 and grew a mere 5 percent in the first nine months of 2010. But to starved equity investors, Nielsen at least had the makings of a decent story. According to S&P LCD, Nielsen could boast of 38 percent EBITDA gains under private ownership, the best of the jumbo buyouts from the great leveraged era.

The same can’t be said of many of the other whoppers from 2006 and 2007. Hospital chain HCA, a $33 billion buyout by KKR, Bain Capital and others, looks a promising prospect with its healthy profit growth and reduced leverage. Biomet, the orthopedic implant maker, could be another. But plenty of others still look more Harrah’s than Nielsen. The casino operator, taken private for $26 billion, tried for an IPO last December but couldn’t persuade investors to overlook its serious shortcomings.

There isn’t enough lipstick to doll up some of these ugly ducklings just yet. Spanish-language TV company Univision and payment processor First Data are both still leveraged at around an eye-watering 12 times. Apollo’s Realogy is still weathering the real estate storm and chipmaker Freescale would be constrained in any sales pitch by the biggest EBITDA decline among the buyout whales.

Nielsen’s seven big backers, including Blackstone and Carlyle, have cause to celebrate the market audience they attracted. But investors need to remain choosy about most other hulking portfolio companies winging their way back from private equity.

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