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Amadeus IPO

Amadeus IT Holdings IPO to test investors' appetite for Spanish-listed travel stocks


MADRID — Amadeus IT Holdings SA is set to price its initial public offering on Tuesday, testing investors' appetite for Spanish-listed travel stocks at a time when both the Spanish economy and global travel continue to slump.

The company aims to raise roughly €1.3 billion ($1.7 billion), more than in any other European IPO so far this year, by selling about 25% of itself in an offering of new and existing shares. If successful, Amadeus's IPO would overtake deals from Germany's Brenntag AG and Kabel Deutschland Holding AG. Analysts say it could give a boost to European IPO activity, which has lagged behind the U.S. and Asia.

But the company, which is owned by private-equity firms BC Partners and Cinven Group and airlines Air France-KLM, Lufthansa AG and Iberia Líneas Aéreas de España SA, faces some serious challenges. Its key business is providing technology to the travel industry, just as Europe emerges from its biggest-ever disruption to air travel, the volcanic eruption in Iceland. Amadeus is listing in Spain, one of the region's weakest economies. Moreover, one of Amadeus's main rivals tried to go public two months ago and failed.

The company is nevertheless forging ahead. Amadeus's advisers on Monday tightened the price range for the IPO to €10.50 to €11.25 per share, from an original range of €9.20 to €12.2, according to a person familiar with the matter. The narrower range means Amadeus will raise between €1.3 billion and €1.33 billion. Banks advising Amadeus could sell an additional €130 million of shares if demand is strong.

Goldman Sachs Group Inc.'s Goldman Sachs International, J.P. Morgan Chase & Co.'s J.P. Morgan and Morgan Stanley are handling the sale.

"I think this is another step towards a recovery of the European IPO market," said Josef Schuster, founder of IPOX Schuster LLC, a financial-services firm specializing in IPO products.

The backbone of Amadeus's business is its operational data center, which links travel providers such as airlines and hotels with travel agents, allowing for easy processing of reservations. Every time a ticket or hotel room is sold through its system, Amadeus receives a fee.

Amadeus is the leader in this market, with a 36.5% share, ahead of closely held U.S. rivals Sabre and Travelport, which command about 30% each. Travelport tried to go public in February this year, but the IPO was scuppered by lack of demand and tumbling stock markets.

The travel sector is closely linked to global economic growth, which dropped 4% last year. But now the global economy is recovering, and analysts say air travel is likely to revive. According to the World Tourism and Travel Council, the global travel industry is expected to grow at a pace of 0.5% this year, and to average 4.4% a year over the coming decade.

In meetings with investors over the last two weeks, Amadeus has been working hard to position itself as different from Travelport. A banker on the deal described it as a "much more straightforward story than Travelport, with much higher profitability and margins, and exposed to growth regions" including Asia, Latin America, Africa and Central and Eastern Europe. Another selling point: Bankers say Amadeus is the only actor in the field that has a modern software architecture, making it more flexible, faster and easier for clients to link up to.

Over the past nine years, Amadeus's revenue has grown to €2.46 billion from €1.36 billion. London-based research firm Independent International Investment Research said in a report that it expects the company's sales to grow by about 6% a year over the next four years.

Amadeus's debt load, however, is still significant. The company has €3.52 billion in outstanding debt it took on when BC Partners and Cinven bought majority stakes in it via a leveraged buyout in 2005. It plans to use the proceeds of the sale of new shares—some €910 million—to pay down debt.

The offering, which is being marketed to institutional investors, is Spain's first major IPO since the start of the global financial crisis in late 2008, marking a test of investors' appetite for companies listed in Spain. While global equity markets have rebounded strongly since February, when Travelport and many other IPOs were canceled, Spanish equities have underperformed most of their European peers this year, bond spreads have widened and the cost of insuring Spanish debt has risen.

Amadeus also offers software that allows airlines to manage reservations, track passengers and luggage and control plane departures. The software was a big bet when Amadeus began developing the product more than a decade ago, and one that has cost it about €800 million in investment, Banco Santander estimates. The investment is starting to pay off, analysts say, as airlines, keen to cut the number of information-technology staff they employ, are increasingly looking to move their in-house passenger IT systems to third-party software.

Amadeus President and Chief Executive David V. Jones said he sees strong potential in emerging markets such as Asia and the Middle East, where travel is growing fast, and as an IT provider to railways, airport operators and hotels across the globe.

Amadeus IT Holdings IPO to test investors' appetite for Spanish-listed travel stocks
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