Exclusive: Francisco Partners plans GXS IPO after exploring sale
Buyout firm Francisco Partners LP said on Wednesday that GXS Worldwide Inc, the provider of electronic commerce services it has majority control of, was planning an initial public offering after it explored an outright sale of the company.
"We are planning a refinancing of GXS and a subsequent IPO," Francisco Partners said in a statement to Reuters. "We carried out a market check with JPMorgan Chase & Co and although the valuations we received were reasonable, we did not think they were compelling for us to sell GXS at this moment."
GXS, which serves more than three-quarters of the Fortune 500 companies, was marketed to other private equity firms that offered more than $1 billion for the company but failed to meet Francisco Partners' expectations, according to three people familiar with the matter. Francisco Partners refused to comment on the valuation it was seeking.
GXS and JPMorgan declined to comment. Golden Gate Management LLC, Cerberus Capital Management LLC and Norwest Venture Partners LP, that are minority investors in GXS, either declined to comment or did not respond to requests for comment.
Gaithersburg, Maryland-based GXS serves the so-called business-to-business integration market that involves the exchange of purchase orders, invoices, payment instructions and other commercial transactions between businesses.
The company has been transitioning from messaging services, that allow for the transmission of data on transactions between businesses, to managed services, which integrate the operations of companies through a network of computers referred to as the "cloud."
GXS's managed services revenue grew at a three-year compounded annual growth rate of 23.6 percent from 2009 to 2012 and represented approximately 37 percent of its total revenue in 2012, the company has said, arguing that its customers view its solutions as essential to their day-to-day supply chain operations.
"The company's managed services business is growing very nicely and becoming a bigger portion of the entire company's revenues," Francisco Partners said in the statement.
GXS reported adjusted earnings before interest, taxes, depreciation and amortization of $146.5 million in 2012, down from $155.2 million in 2011. However, it posted a net loss of $10.2 million in 2012, due to the interest expenses it had to pay to service its $775.3 million debt.
The company has warned that it may continue to incur losses due to its debt and cannot guarantee that it will report a net profit in the future.
Francisco Partners, which specializes in investments in the technology sector, invested in GXS in 2002 through its inaugural $2.5 billion fund it raised in 2000, taking over the company from General Electric Co .
The Francisco Partners fund that invested in GXS has a ten-year term and the firm had to seek extensions from its investors to hold on to the company, although it stopped charging them management fees last year.
The private equity fund, which started investing just as the technology bubble burst in the early 2000s, was valued at 1.3 times its investors' money as of the end of December 2012, representing a 4.93 percent net internal rate of return, according to Washington State Investment Board, an investor.
(Reporting by Nadia Damouni and Greg Roumeliotis; Editing by Tim Dobbyn)