Psst…wanna buy a bit of Legoland and Madame Tussauds? Disney rival Merlin aims to conjure IPO for small investors

Disney rival Merlin aims to conjure IPO for small investors

Merlin Entertainments is planning to offer more than 10pc of its shares to retail investors as the world’s second biggest attractions owner behind Disney gears up for a £3bn-plus stock market listing before Christmas.

Annual Clean Up at Legoland Windsor Resort

The millions of visitors who go to Legoland and other attractions owned by Merlin Entertainments around the world – Madame Tussauds, Sea Life Centres, London Dungeon (and its spin-offs), London Eye (and spin-offs) – certainly appear to think so. Recent surveys put customer satisfaction at more than 90pc. Photo: Mikael Buck

By Nathalie Thomas

9:30PM BST 07 Sep 2013

The owner of Madame Tussauds and Legoland wants to offer a significant proportion of its shares at flotation to small investors, given the high profile of its brands among the general public. Nick Varney, Merlin Entertainments’ chief executive since 1999, is understood to feel particularly strongly about including a retail offer as part of the flotation, which could be launched before the end of the year. Although the exact percentage of shares for smaller investors is yet to be settled, it is believed to be more than 10pc. Merlin’s plans could be complicated, though, if the Government begins the Royal Mail’s initial public offering (IPO) at about the same time.Merlin is understood to be watching the situation with Royal Mail closely as ministers gear up to sell a majority stake in the postal service.

Mr Varney and Merlin’s long-standing chief financial officer, Andrew Carr, have been meeting institutional investors over the past few days to smooth a path towards an IPO as they try to avoid a repeat of their last failed attempt at a stock market listing in 2010. Merlin was forced to pull the plug on its flotation at the eleventh hour, amid stock market volatility.

It is expected Merlin will go to market before Christmas, although the company is keeping a close eye on the situation in Syria and the potential for it to cause further jitters in the markets.

The private-equity backed company is also looking at reducing debt below £1bn before flotation amid concern among some institutional investors over gearing levels.

While the board is happy with the group’s net debt, which stood at just under £1.3bn at the end of 2012, investors in publicly-listed companies are not as comfortable as private equity backers with higher levels of debt.

Merlin’s net debt to earnings before interest, tax and depreciation (ebitda) ratio stands at more than three times and management is understood to be in discussions with investors over bringing down that ratio, potentially to around 2.5. Ebitda rose to £346m last year from £306m, despite a difficult year in which Merlin was hit by a triple whammy of the Olympics, austerity and the wettest weather on record in its biggest market, Europe.

After the flotation was shelved in 2010, private equity giant CVC Capital Partners bought a 28pc stake in Merlin as part of a £330m deal that allowed Dubai International Capital to exit the firm and Blackstone to cut its stake from 48pc to 34pc.

The extra three years of private equity ownership have helped to facilitate a significant push into the Asia-Pacific region. Around 14pc of Merlin’s revenues are generated in Asia-Pacific, 20pc in North America and the remainder in Europe.

Mr Varney expects the company eventually to generate a third of its revenues in each region.

A Merlin spokesman declined to comment.


Psst…wanna buy a bit of Legoland?

My nine-year-old son’s favourite Lego sets at the moment are Legends of Chima, a family of animal warriors that do battle over a precious energy source called chi.

By Kamal Ahmed, Sunday Telegraph Business Editor

9:30PM BST 07 Sep 2013

I haven’t told him yet about the Chima movie experience at Legoland, near Windsor, because I would never hear the end of it. When it comes to the psychology of persuading fathers that stuff “will be fun”, my son is a Jedi master.

I have no doubt he would be right. The millions of visitors who go to Legoland and other attractions owned by Merlin Entertainments around the world – Madame Tussauds, Sea Life Centres, London Dungeon (and its spin-offs), London Eye (and spin-offs) – certainly appear to think so. Recent surveys put customer satisfaction at more than 90pc.

As markets bounce upwards on increasingly good economic news, initial public offerings are coming back to life. Merlin, led by the indefatigable Nick Varney since 1999, is now plotting how and when it is best to realise its £3.5bn value with a public listing. If the stars align, a move could come before Christmas.

Successful floats for Countrywide, Direct Line and Crest Nicholson have eased previous tensions between sellers and buyers who have danced around each other with understandable wariness following some grotesque over-valuations in the past.

Fortunately, 2013 does not feel like 2010, when a number of private businesses, including Merlin, flirted with the markets only to pull back at the last minute.
Although nothing is ever certain – Syria’s effect on the markets and the possibility of US “tapering” should not be underestimated – Merlin’s strong business case makes a successful completion more likely this time around.

Without the refinancing element of 2010, the business has appointed six banks to handle the float, compared with 11 in 2010. Fees, often a bugbear for institutions, will be far lower and pricing sensible.

Most powerfully, Merlin’s story since 2010 has progressed largely as Mr Varney said it would, a boast that cannot be made by other contenders for a 2010 market debut. New Look anyone?

Earnings before interest, taxes, depreciation and amortisation (ebitda) have increased from £256m to £346m, on a healthy 32pc margin.

CVC Capital Partners, brought in as part of Merlin’s 2010 refinancing, opened doors to the Asian market and was essential in sealing the deal for Sydney Attractions Group that secured three new Sea Life Centres and the Sydney Tower Eye.

Via the acquisition, which Mr Varney “gate- crashed” at a late stage thanks to CVC’s contacts, Merlin was able to gain synergies with clusters of attractions cross-selling and cross-promoting.

CVC also helped with the other major Asia deal, Living and Leisure Group, which created similar clusters in Bangkok and Shanghai.

In 2010, just 2pc of Merlin’s business was in the Asia Pacific region. That figure is now 14pc and, despite question marks over the future macro-performance of some emerging market economies, the development of a demanding middle class (and a whole new generation of high-spending tourists) is difficult to argue with. Merlin needs to keep pushing eastwards.

The other growth area is residential, where Merlin is belatedly learning the Disney trick of running hotels at its resorts and encouraging families to stay longer and spend more money.

Over the past few days, Mr Varney has been visiting institutions and analysts to sell the Merlin story.

He will have to answer questions about a tricky 2012 where appalling weather in the UK, eurozone woes and the Olympics depressed visitor numbers for Merlin’s European resorts. Yes, Merlin is building an Asian “hedge” against struggling Europe but, when revenue growth is below volume growth, margins will come under pressure.

Overall, though, that is a minor matter. As we reveal today, Merlin is so confident of its case it is considering a retail offer. Net debt is likely to come down to 2.5 times earnings, a manageable figure.

So, I may not break into my son’s piggy bank quite yet but this is an IPO with a lot going for it.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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