UL Solutions tests rebounding IPO market
UL Solutions, the US product testing, inspection and certification body, has launched an up to US$812m NYSE IPO that taps into multiple favourable mega trends and the recovering new issue market.
A 16-firm syndicate led by Goldman Sachs, JP Morgan and Bank of America is marketing the all-secondary sale of 28m shares representing 14% of UL at US$26–$29 per share ahead of pricing on April 11.
The syndicate did not provide any message on subscription levels at launch, but bankers close to the deal and investors expect the offering to find wide appeal.
"This is a company that sits at the intersection of a lot of investment themes. It's interesting because it has been a bit of a Venn diagram in terms of the sector focus of investors that have been taking a look," a syndicate banker said.
Management hopes that by going public it will be able to accelerate growth via M&A and better exploit its exposure to trends such as energy transition, electrification, the internet of things, sustainability and regulatory compliance.
Its non-profit parent, UL Standards & Engagement, is selling all the shares in the offering to cut its stake to 86%. The parent will retain almost total control as the owner of all super-voting shares, though this dual-class structure (often frowned upon by investors) will fall away at the earlier of seven years or when the stake falls below 35%.
Norges Bank Investment Management, which manages Norway's US$1.61trn sovereign wealth fund and has a heavy ESG bias, has agreed upfront to buy US$75m of shares. UL Standards is locked up for 180 days but NBIM is not.
The terms give UL Solutions a market cap of up to US$5.9bn and enterprise value of up to US$6.4bn, a trailing adjusted Ebitda multiple of 11 or broadly in line with global peers such as Bureau Veritas, SGS and Intertek.
UL Solutions' origins date back to the late 1800s when founder William Henry Merrill Jr was sent to the World's Fair in Chicago to assess fire risks for his job at Boston Board of Fire Underwriters. He later formed the Underwriters’ Electrical Bureau before Underwriters Laboratories was incorporated as a non-profit in 1901.
More recently, the UL organisation has split into a for-profit entity providing testing and certification (UL Solutions) and two non-profits, UL Research Institutes that focuses on safety research and UL Standards & Engagement, which develops safety standards.
Dividends
US consumers are familiar with the UL mark that appears on electrical appliances, though its services extend across industries including automotive, construction and financial services. It is a steady but not spectacular grower, generating compound annual revenue growth of about 7% in the past 12 years, both organically and from acquisitions.
It also delivers steady profit. In 2023, it reported net income of US$276m and adjusted Ebitda of US$563m from revenue of US$2.7bn, the latter up 6.3%.
In 2021, the company paid US$1.8bn in special dividends to ULSE, followed by another US$600m payout in December. These funds enable the non-profit to address complex public safety risks, including battery safety and those associated with autonomous driving systems and artificial intelligence.
UL Solutions will also pay a dividend, which in the first quarter was US$25m, equating to an annual yield of 1.7%.
In the roadshow presentation, CEO Jenny Scanlon said UL Solutions maintained a strong and healthy balance sheet, generated recurring revenue and strong free cashflow, and had "plenty of fuel for growth".
“Over time we expect that being public will enable us to grow faster than our current structure allows," CFO Ryan Robinson said in the presentation.
The company may also use its excess cashflow to repurchase stock to enhance shareholder returns, Robinson said.