UL Solutions tests rebounding IPO market
UL Solutions, the product testing, inspection and certification body whose origins date back to the 1893 World's Fair in Chicago, launched an up to US$812m NYSE IPO early Tuesday in the latest sign of renewed vigor in the US 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 or 14% of UL Solutions at US$26-$29 for pricing on Thursday, April 11. The syndicate did not provide any message on subscription levels at launch.
UL Solutions' parent, UL Standards & Engagement, is selling all the shares in the offering to cut its stake to 86%.
Norges Bank Investment Management, which manages Norway's massive sovereign wealth fund, has agreed upfront to buy US$75m of shares. Unlike the selling shareholder, Norges is not locked up as part of the standard 180-day selling restriction for most IPOs.
The terms give UL Solutions a market cap of up to US$5.9bn and enterprise value of up to US$6.4bn, around 11x trailing adjusted Ebitda and broadly in line with global peers such as Bureau Veritas, SGS and Intertek.
UL Solutions' history dates as far back to the late 1800s when founder and MIT graduate William Henry Merrill Jr was sent to the Chicago World's Fair 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 nonprofit in 1901.
Following a series of transactions in the past decade and a half, the UL organization has split into one for-profit/commercial entity providing TIC services (UL Solutions) and two nonprofits, UL Research Institutes (undertaking safety research) and UL Standards & Engagement (developing safety standards).
Dividends
In 2021, UL Solutions paid US$1.8bn in special dividends to UL Standards & Engagement, followed by another US$600m payout in December last year. These funds enable the nonprofit to fund its mission of addressing complex public safety risks, including electrochemical battery safety and those associated with autonomous systems and artificial intelligence.
UL Solutions, the company behind the UL "mark" certifying that products comply with safety standards, 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.
In the year ended December 31 2023, UL Solutions reported net income of US$276m and adjusted Ebitda of US$563m from revenue of US$2.7bn, the latter up 6.3% versus the prior year.
The company expects to pay a quarterly dividend after last year returning US$20m per quarter to its sole shareholder. This payout rose to US$25m or 12.5 cents per share in the first quarter of this year, equating to an annual yield of 1.7%.
"UL Solutions' business has benefited from globalization of supply chains, new technologies that lead to more and more products, the electrification of products and increasing sustainability requirements across many types of products and services," CFO Ryan Robinson said in the investor 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".