iHeartMedia, the US’s largest owner of radio stations, has ditched its ambitious plans for an IPO and will instead directly list its shares on Nasdaq later this month.
The move comes just a few months after iHeartMedia emerged from Chapter 11 bankruptcy protection and follows the increasingly popular direct listing/“non-IPO” path blazed by Spotify Technology in April last year and by Slack Technologies last month.
Yet unlike Spotify and Slack, both tech unicorns that could have just as easily priced a traditional IPO, iHeartMedia’s plan to raise equity and enable existing shareholders to sell via an IPO always looked shaky.
With a sharply reduced but still hefty US$5.8bn of debt (six times adjusted Ebitda) and a listless growth profile, the owner of 848 broadcast radio stations in 160 US markets may have been forced to accept a sharp discount if it proceeded with a traditional IPO. Many large leverage-backed IPOs (most recently Change Healthcare last month) have found it difficult in recent years to avoid pricing below their marketing ranges.
“[iHeartMedia] probably would not have got a high price from the IPO given the debt they carry and the pushback [from investors] that would likely ensue,” said IPO Boutique’s managing director Scott Sweet.
“Neither Slack nor Spotify had debt like that and did not come out of bankruptcy and Spotify especially had very high brand awareness.”
On June 28, iHeartMedia announced it had withdrawn its IPO filing first lodged with the US Securities and Exchange Commission in early April but would still list its Class A shares on Nasdaq on July 18 after a short roadshow at the start of that week.
“Our listing on … Nasdaq will provide greater liquidity for existing shareholders, allow us to diversify our investor base and give us improved access to public capital markets in the future,” Bob Pittman, iHeartMedia’s CEO, said in a statement.
Goldman Sachs and Morgan Stanley were slated to lead the IPO underwriting syndicate, but will now switch to become financial advisers akin to their roles on the Spotify and Slack direct listings.
A direct listing, which involves no capital raise, no lock-ups and no stabilisation (because there is no underwriting syndicate), is arguably more suited to companies emerging from bankruptcy that already have a spread of shareholders.
Coal miner Peabody Energy, another former bankrupt, directly listed on the NYSE in 2017.
iHeartMedia has long struggled with debt taken on to finance the ill-timed US$17.9bn leveraged buyout of Clear Channel Communications in 2008, a deal stitched together by private equity firms Thomas H Lee Partners and Bain Capital.
The major shareholders of iHeartMedia now include Franklin Mutual Advisers, Pimco, Oppenheimer Funds, Abrams Capital and Brigade Capital Management.
Their holdings arise from a bankruptcy process that saw iHeartMedia separate Clear Channel Outdoor, reduce debt from US$16bn to US$5.8bn, restructure the remaining debt and issue common stock and special warrants to creditors.
If an IPO had proceeded, existing shareholders would probably have sold shares in the offering but put the bulk of their shares into a six-month lock-up arrangement to limit the overhang risk for new shareholders.
The challenge facing iHeartMedia now is that with a direct listing these shareholders can sell all of their shares immediately if they like, potentially putting downward pressure on the share price.
Shares of iHeartMedia already trade on the thin over-the-counter market, and were fetching US$15.40 during the week to value the company at about US$2.3bn on a fully diluted basis.