NEP Group IPO - Burning Lots Of Cash, Don't Plug In

by: Don Dion
Summary

Pittsburgh-based NEPG provides production solutions to cable networks, television broadcasters and event producers.

Set to IPO 7.31.2015, NEPG’s lead underwriters include Barclays and Morgan Stanley, with Jeffries, Macquarie, Nomura, RBC Capital Markets and Stifel Nicolaus rounding out the syndicate.

While NEPG’s losses from 2013-2014 are HUGE, we are somewhat comforted by the fact that these have decreased Q1 2014-Q1 2015.

Despite a somewhat unique business and impressive management, we suggest holding off on this IPO.

NEP Group Inc. (Pending:NEPG) expects to raise $208 million in its upcoming IPO. Based in Pittsburgh, Pennsylvania, NEP Group is a company that provides production solutions to cable networks, television broadcasters and event producers.

NEPG will offer 13 million shares at an expected price range of $15 to $17. If the underwriters price the IPO at the mid-point of that range, NEPG will have a market capitalization of $603 million.

NEPG filed for the IPO on June 29, 2015.

Lead Underwriters: Barclays Capital and Morgan Stanley

Underwriters: Jeffries LLC, Macquarie Capital, Nomura Securities International, RBC Capital Markets and Stifel Nicolaus

Business Summary: Provider of Production Solutions to TV, Cable and Event Producers

NEP Group, Inc. provides production solutions to television broadcasters, cable networks, and event producers. The company offers outside broadcast, remote production, video display, studio production, host broadcasting and post production solutions to the sports, entertainment and live events industries. The company maintains offices in 13 countries and has provided services in over 65 countries for over 1,700 clients that include the NFL, PGA, MLB, NHL, NBA, WWE, NCAA, professional tennis, EPL, Olympic Games, World Cup and Commonwealth Games.

In addition, NEP facilities produce broadcasts for the Academy Awards, the Rolling Stones, Super Bowl, Emmy Awards, The Daily Show with John Stewart, The Colbert Report, FIFA World Cup, NASCAR and Sesame Street.

Its facilities include operations in the United States, the United Kingdom, Ireland, the Netherlands, Sweden, Norway, Denmark, Germany, Finland, Switzerland, Belgium, the United Arab Emirates, and Australia. It also has mobile units in the United States and internationally. Moreover, the company maintains numerous mobile production vehicles in the United States.

The company intends to use the proceeds of this offering to pay down existing debt.

Executive Management Overview

CEO and Director Kevin Rabbitt has been with NEP Group since January 2012. His previous experience includes senior executive positions at GES Exposition Services, 3 Day Blinds, Bain & Company, and Texas Ice Stadium in Houston. Mr. Rabbitt holds an MBA from Harvard Business School and a bachelor's degree in managerial studies from Rice University.

President and COO Keith Andrews has served NEP Group since April 2015. His previous experience comes from positions at Stratus Technologies and NEP Australia, where he served as Chief Executive Officer and Managing Director. He serves on several boards for private and public listed technology companies. Mr. Andrews holds a degree from Queensland University of Technology.

Potential Competition: Telegenic, Lyon Video and Mobile Television Group

Since NEP Group operates primarily in the United States, Europe and Australia, its most significant competition comes from those markets. In providing expertise and services for broadcasters, cable and producers, the company competes against F&F Productions, Lyon Video, Game Creek Video and Mobile Television Group in the United States; Gearhouse Broadcast in Australia; AMP Visuals, Top Vision, Mediapro Group and Euro Media Group in Continental Europe; and CTV Outside Broadcasts and Telegenic in the UK.

Financial Highlights: History of Losses

NEP Group provided the following figures from its financial documents for the year ended December 31:

 

2014

2013

Net Sales

$442,800,000

$356,500,000

Net Income

($41,200,000)

($27,300,000)

As of March 31, 2015:

Total Assets

$1,110,707,000

Total Liabilities

$1,016,714,000

Stockholder's Equity

$93,993,000

Conclusion: Hold Off

While NEPG's losses from 2013-2014 are significant, we are somewhat cheered by the fact that these have decreased Q1 2014-Q1 2015 from ($35,193,000) to ($7,036,000).

We like NEPG's solid underwriting team-although it is not the most illustrious we've seen.

Stated risks include increasing competition, as well as the potential for an adverse realignment of broadcast rights, which could have a material negative impact.

With relatively few IPOs this week, NEPG could garner more attention; yet the firm's history of losses keep us cautious, and we suggest investors hold off.

Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.