News / Analysis: CEVA set fair, but will the big deal be an IPO or a bid by XPO?

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Following private conversations with my banking sources – most of whom have vested interests in the company’s traded debts – there remain serious doubts surrounding the timing and the outcome of a much-awaited IPO for CEVA Logistics, yet the odds are short a deal could be nearing, at least if you trust anecdotal evidence.

The more the merrier

“Definitely upcoming; that is the plan, and it shows in the price of the debt lately, but not all shareholders are on the same page,” one debt investor based in New York warned me, adding: “Apollo is moving ahead with the plan nonetheless.”

It is still unclear, I gathered, whether it has reached the formal signing of the mandate letter with the appointment of the bookrunners, but my source added that “the usual suspects are on the hook”.

Banks traditionally close to CEVA are Morgan Stanley, Goldman Sachs, UBS, Credit Suisse, Deutsche Bank and Goldman Sachs. The more the merrier applies here: the 3PL will need all the help it can get if it goes for, as is likely, a very rich valuation.

Structure

While it is premature to debate the size of the deal, The New York Post reported on Thursday that a float of $1.5bn was likely before Easter.

This number is almost meaningless, in my view, as the current deal structure is unknown, there are no details concerning the size of the stake up for sale and it is unclear, too, whether new equity would be raised. In early October, I highlighted the possibility of CEVA entertaining an IPO to grow inorganically and trim outstanding debts.

However, CEVA, I understand, would likely want to tap the public markets going for an implied enterprise value (EV) of between $3bn and $4bn, given trailing/forward trading multiples for most of its rivals. Assuming adjusted ebitda just below $300m, a 14x multiple yields an EV at the top end of that range, against a 14x-16.5x trading range for Kuehne + Nagel, Expeditors and DSV, based on 2017 reported and expected figures.

Apollo is smart if it figures out how to move fast – a couple of my sources would agree that the typical spring window suits best, if volatility allows it. That said, the interest rate environment and expectations for rate hikes have turned to be more hawkish since the turn of the year, and the unconfirmed rumour – dismissed by CEVA as speculation – also could have been leaked to test trade buyers’ appetite.

Anecdotal evidence

The CEVA story has been doing the rounds for more than five years, and all sorts of speculation has been reported. So, how reliable is The New York Post?

“Despite its tabloidy nature, it has a business section that tends to be pretty good,” another debt banker in New York pointed out. “Actually, it tends to get stories earlier than other more serious publications (in finance), so I can believe they are working on an IPO.”

This is just anecdotal evidence, we agreed, but “the other point I am going to give you is, we own some of the revolver maturing in March 2019”.

The banker added: “And we had some loose conversations with the company in the past about, you know, if we extended it what it would look like, nothing serious – but this is only one year before it matures.”

“So, I do not know for sure if CEVA is going for an IPO. But what I do know is that we would be receiving lots of calls from the company about the refinancing of the revolver, if it was not working on a 2018 event, or whatever event it is working on.”

When asked whether Apollo bankers were keeping other shareholders in the dark, he replied: “I think that is probably right, Apollo controls the board and the direction.”

“I suspect CEVA knows little,” another US banking source whispered.

The debt last week priced in an event that would clearly be a positive for CEVA, and most of my sources agree this also means its next trading update, due in early March, will unlikely be a disappointment.

The managing director of an investment bank in London noted: “Clearly, we have paid attention to the level of the traded debt and how it reacted to execution, so I would not expect any nasty surprises next month.”

CEVA is approaching a critical point, because management has guided investors for positive free cash flow this year, giving it continuity after encouraging metrics in the third quarter.

“That is very important, but here is the other side of the coin, if you will – if a CEVA IPO materialises and the market sets the right price, it would be easy to speculate that CEVA might have to prepare to be approached by XPO Logistics, and an equity deal for it would make a lot of sense.”

“This is a scenario Apollo might want to keep in mind, or the PE house could leave some big money on the table at IPO.”