Positive Virtus float breathes life into Australian IPO market


Australia's Virtus Health Ltd became the first in-vitro fertilization company in the world to list, hitting the boards at a 7 percent premium to its offer price and sparking hope of renewed life in the country's stalled initial public offering market.

The float is the largest on the Australian exchange so far this year and the biggest private equity exit via an IPO since the disastrous $2 billion listing of department store company Myer Holdings Ltd in 2009.

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The strong debut augurs well for other new listings in Australia, showing an appetite for fresh investment opportunities and a willingness to buy into companies that have been backed by private equity even though some of these have performed poorly in the market.

Virtus shares began trading at A$6.01 ($5.68) on Tuesday, well above the A$5.68 offer price set for the float by Sydney-based Quadrant Private Equity, giving the company a market value of around A$485 million. The stock closed at A$6.21.

The shares had already been priced at the top end of an indicative range in the A$338.7 million float.

"It's a very good start and the volume's there," said Melbourne-based IG markets strategist Evan Lucas. "It's certainly going to make the IPO market quite a happy little place to be."

Virtus is the leading firm in Australia's A$500 million IVF market where one in every three IVF babies born in the country are a result of the company's clinical services.

Quadrant bought into the sector with a A$33 million investment in IVF Australia in 2008 and, while it declined to disclose how much it paid for subsequent purchases to form Virtus Health, it is believed to have cashed out on a multiple of at least 3 times.

Having originally flagged that it might retain 10 percent of the company, Quadrant opted to offload its whole stake on strong investor demand, Virtus Chief Executive Sue Channon said.

Such demand is welcome news for the Australian market, which has experienced a drought of significantly sized IPOs in recent years following some lackluster performances.

Private equity firms in particular have had a rocky time attempting to exit their holdings via stock market listings.

"Unfortunately over the past decade the large private equity businesses that have come to market haven't had a very high success rate," said Wilson HTM investment Group investment adviser Peter Esho.

Drilling services company Boart Longyear Ltd , underwear group Pacific Brands Ltd , fast food group Collins Foods Ltd , resources services provider Calibre Group Ltd have all underperformed.

Myer's 2009 float by TPG Capital and Blum Capital was the nadir -- the retailer's stock has not traded above its A$4.10 issue price and now changes hands for around A$2.28.

Analysts are hopeful that Virtus' arrival could signal the start of an upswing.

"The IPO market may actually finally see some better uptake considering that it's been so downtrodden over the last three years," said Lucas.

Among potentials to follow Virtus to market are equipment firm Coates Hire, logistics and steel company Bis Industries, share registry business Link Group and entertainment group Nine.

U.S. buyout firm KKR & Co. had reportedly considered an IPO exit from Bis, but did not appoint bankers amid a weak market.

Nine has held talks with bankers who have approached private equity owner Apollo about an IPO of around A$1 billion, sources have told Reuters.


Virtus anticipates growing demand for its services due to factors including the growing female population, the rising age of women when they have their first pregnancy and higher social acceptance of assisted reproductive services.

The company posted a net profit of A$24.7 million in 2012 and is forecasting profit of A$26.6 million this year and A$31.4 million next year.

Channon said the company saw growth opportunities in immature markets in the Asia-Pacific, China, India and Middle East.

However, the company has acknowledged that a key risk for the business is the potential for a reduction in the level of funding rebates patients can claim from the Australian government for private IVF services.

About half the company's revenue comes from government payments, with 15 percent from private insurers and 35 percent from individuals' out-of-pocket payments.

($1 = 1.0590 Australian dollars)

(Additional reporting by Stephen Aldred in Hong Kong; Editing by Stephen Coates)