IPO Preview: Taylor & Martin Group

| About: Taylor & (TMG)

Based in Houston, TX, Taylor & Martin Group (TMG) scheduled a $1654 million IPO with a market capitalization of $341 million at a price range mid-point of $11, for Thursday, November 8, 2012.

Five IPOs are scheduled for this week. The full IPO calendar is available here.

S-1 filed October 18, 2012.

  • Manager, Joint Managers: Canaccord Genuity; Oppenheimer.

  • Co Managers: KeyBanc Capital Markets; Stephens.

TMG is a roll-up of previously five separately run companies, funded by a private equity firm that wants to sell to conglomerate to the public at a higher price than they paid.

For the nine months ended September 2012 TMG estimates revenue is up only 13%. Annualizing the June 2012 six months TMG wants to IPO at a P/E of 59, with a Price to Tangible-Book-Value of 10.5.

In addition, if the IPO goes as planned, 48% of TMG's stock will be sold to the public. That high of a percentage is a red flag.

Avoid, based on the above.

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Glossary of IPO Analysis terms

TMG has (or will have) two operational divisions.

The Auction Industry
The supply of pre-owned transportation, agricultural and industrial capital assets continues to grow. TMG believes that auctions represent an increasingly popular distribution channel for these types of capital assets.

The Reverse Logistics Industry
Reverse logistics is the process of maximizing recovery values for excess inventory and returned consumer goods.

According to the Reverse Logistics Report, the value of returned consumer goods alone is 6% to 10% of retail sales. These returned consumer goods, along with excess inventory, are typically either liquidated by the retailer on the secondary market or sent back to OEMs.

Once a product enters the reverse supply chain, OEMs and retailers have multiple disposal options, such as selling goods "as-is," reconditioning or recycling. However, they face challenges in deciding how to maximize the recovery values of these goods.

This preliminary operating data suggests that for the three months ended September 30, 2012 TMG's pro forma combined costs of sales and services, net income and adjusted EBITDA, each as a percentage of pro forma combined revenue, were in line with the comparable percentages for the six months ended June 30, 2012 - where sales were up 13%.

TMG's private equity sponsor, SABA Group, LLC, was formed in January 2009 and subsequently set the goal of establishing a platform company.

In March of 2011, the sponsor's subsidiary, TMG Founder Company, identified Taylor & Martin Enterprises as a leading provider of marketplaces and solutions for pre-owned, transportation, agricultural and construction capital assets. Taylor & Martin Group, Inc. was founded in November of 2011 by TMG's sponsor, SABA Group, LLC.

During this period Rod Cutsinger, TMG's Chief Executive Officer, and his affiliated companies considered a substantial number of businesses in the auction and reverse logistics industries as candidates to form a cohesive platform for the optimal liquidation of various assets.

The criteria used for the evaluation of the candidates included (i) company culture and how it would fit with culture of other candidates, (ii) how management would fit with the management of Taylor & Martin Group, Inc. and the management of other candidates, (iii) historical financial performance, (iv) positioning in the marketplace, and (v) growth potential.

By the end of 2011 and early 2012, five long-established and reputable family-owned businesses, the Partner Companies, had been selected to form the operating divisions of TMG company. Between January and May 2012, TMG had entered into combination agreements with each of the Partner Companies.

The asset liquidation industry is highly fragmented, competitive and growing rapidly.

According to InfoUSA, there are over 10,000 auction, reverse logistics and associated services companies that deal in capital assets and excess inventory and returned consumer goods.

In addition, based upon publicly available information and TMG's senior management team's experience, the three largest competitors in the industry collectively represent less than 2% of total combined annual gross proceeds from the sale of capital assets and excess inventory and returned consumer goods.

TMG currently competes with other physical site and online auction and liquidation companies, such as GAT Trading, Genco Marketplace, Gordon Brothers, Great American Group, Inc., Liquidity Services, Inc., Manheim Auctions, Inc., Ritchie Bros. Auctioneers Incorporated, Truck Centers, Inc., and WWA Group, Inc., among others.

Non-auction and non-liquidation company competitors include equipment manufacturers, distributors and dealers, equipment rental companies, charities, flea markets and factory outlets;

e-commerce providers competitors include Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY), among others; and

Competitors also include traditional liquidators and physical site auctioneers.

As of June 30, 2012, TMG employed 400 full-time employees

TMG expects to net $153 million from its IPO. Proceeds, including borrowings under the revolving credit facility, are allocated as follows:

  • $136.1 million to fund the cash portion of the consideration payable at closing to the stockholders of the Partner Companies in the Combinations, plus $5.2 million of payments to adjust working capital based on balances as of June 30, 2012; and

  • $15.0 million to pay the estimated expenses associated with the combinations.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.