Eye on This Week's IPOs: Targa, First Republic, CTPartners

 |  Includes: HSII, KFY, NGLS, TRGP
by: IPOdesktop

IPO schedule: Targa Resources Investments (NYSE:TRGP), First Republic Bank (NYSE:FRC), CTPartners Executive Search (NYSEMKT:CTP)

December 6 week: Nine IPOs scheduled for $1.3 billion
Targa Resources Investments (TRGP) $275mm IPO with a market cap of $826 at the price range mid-point of $20. Expected Tuesday, December 7, 2010

Except for Chesapeake Partners (CHKM) TRPG is priced at a premium compared to PAA Natural Gas Storage (NYSE:PNG), Atlas Pipeline Partners (NYSE:APL), Copano Energy LLC (NASDAQ:CPNO), DCP Midstream Partners (NYSE:DPM)

TRGP Valuation Metrics compared with CHKM, PNG, APL, CPNO & DCP

Ninety one percent of proceeds go to private equity Warburg Pincus LLP Partners, which will retain a 44% ownership interest.

Targa owns general and limited partner interests, including incentive distribution rights (“IDRs”), in Targa Resources Partners LP (NYSE: NGLS), $2.3 billion market cap. NGLS provides midstream natural gas and natural gas liquid services in the United States. It is engaged in the business of gathering, compressing, treating, processing and selling natural gas and storing, fractionating, treating, transporting and selling natural gas liquids and products.

TRGP’s interests in NGLS consist of the following:

  • A 2% general partner interest, which TRGP holds through its 100% ownership interest in the general partner NGLS

  • All of the outstanding incentive distribution rights of NGLS and

  • 11,645,659 of the 75,545,409 outstanding common units of NGLS, representing a 15.1% limited partnership interest in NGLS.

Expects an initial quarterly dividend rate of $0.2575 per share, $1.03 annual rate, 5.15% return at the price range mid-point of $20

TRGP is experiencing increased competition for the types of assets it contemplates purchasing. The weak economic conditions and competition for asset purchases could limit TRGP’s ability to fully execute its growth strategy. TRGP’s inability to execute its growth strategy could materially, adversely affect its ability to maintain or pay higher distributions in the future.

Major competitors for natural gas supplies in its current operating regions include Atlas Gas Pipeline Company, Copano Energy, L.L.C. (“Copano”), WTG Gas Processing L.P. (“WTG”), DCP Midstream Partners LP (“DCP”), Devon Energy Corp (“Devon”), Enbridge Inc., GulfSouth Pipeline Company, LP, Hanlan Gas Processing, Ltd., J W Operating Company, Louisiana Intrastate Gas and several other interstate pipeline companies.

One hundred percent to selling shareholders. And 91% of proceeds to private equity Warburg Pincus LLP Partner which will retain a 44% ownership interest.

First Republic Bank (FRC) A $281mm IPO with a market cap of $3.26bb at the price range mid-point of $25.50. Scheduled for Wednesday, December 8, 2010.

Even though there is apparent demand for FRC, it seems prudent to not participate for several reasons.

  1. The stock registration is not filed with the SEC. Rather, it is filed with the California Department of Financial Institutions, which is much more lenient in terms of disclosure.

  2. After FRC’s acquisition by Merrill Lynch the after tax profit margin increased 10 times. On a longer term basis it seems unlikely that FRC as a standalone company can sustain such an abnormally high private margin.

FRC Valuation Metrics

Acquired by Merrill Lynch in September 2007 for 3.6 times tangible book value, FRC then became part of Bank of America (NYSE:BAC) after BofA’s acquisition of Merrill.


  • Newly chartered First Republic began operations July 1, 2010 after a $1.86bb buyout by management and private equity firms Colony & General Atlantic.

  • If the buyout was for 100% and all equity, then at the price point mid-range the buyout team has a 75% gain in less than six months.

FRC doesn’t plan on paying dividends.


Include Citigroup (NYSE:C) Private Bank, JP Morgan (NYSE:JPM) Private Bank, U.S. Trust, Bank of America Private Wealth Management, Brown Brothers Harriman & Co, Safra National Bank of New York, Lydian Trust Company , National City Corporation, Wachovia Corporation, Kleinwort Benson (Channel Islands) Ltd., Arbuthnot Latham & Co., Limited.


Of $92.4mm from sale of 4mm shares from company. Private equity shareholders intend to sell 7mm shares for $178mm. For general corporate purposes.


CTPartners Executive Search (CTP). A $30mm IPO with a market cap of $88mm at the price range mid-point of $13. Scheduled for the week of Dec 6 2010.


  • Retained personal service executive search company priced at 10x earnings, annualized for the nine months ended September 2010.

  • Competes with large very well established firms.

CTP Valuation Metrics compared with KFY & HSII

Small IPO which may not get much interest next week.


  • A leading provider of retained executive search services to clients on a global basis.

  • Provides services through 15 offices in the Americas, Europe and Asia Pacific, as well as through six associated offices in Latin America.

  • Help clients build stronger leadership teams by facilitating the recruitment and hiring of “C-level” executives, other senior executives and board members.

Most direct competition comes from the following five global retained executive search firms: Egon Zehnder International, Heidrick & Struggles International (NASDAQ: HSII), Korn/Ferry International (NYSE: KFY), Russell Reynolds Associates, Inc. and Spencer Stuart.


  • $22.6mm from sale of 1.9mm company shares. Shareholders intend to sell 4mm shares

  • $4.5 million to cash out the value of performance units granted to consultants

  • $4.3 million in tax costs resulting from conversion from a limited liability company to a “C” corporation

  • $1.9mm to prepay in full a promissory note issued by CTP to the former chief executive officer and his family trust

  • $1.6mm to prepay $1.6 million executive search consultants

  • To hire executive search consultants and for general corporate purposes.

Disclosure: None