Shanghai-based Focus Media has raised $172 million pre greenshoe, in what represents the largest Nasdaq listing of a Chinese company. The Mainland media company issued 10.1 million ADR units at $17 per unit after Tuesday's close in New York.
The Goldman Sachs led deal priced above its indicative range of $14 to $16 - a rare occurance in the US and not possible in Hong Kong for regulatory reasons. There is also a 15% greenshoe, which could bump proceeds up to $198 million.
The base deal closed 20 times oversubscribed, or 17 times counting the shoe. About 70% of demand came from the US, 8% from Asia and 22% from Europe. Allocations saw 62% go to the US, 24% to Europe and 14% to Asia.
About 70% of the book was placed with institutional investors, 20% with corporates and the remaining 10% with high net worth clients.
A total of 200 investors placed orders, with ten institutional clients placing orders for $20 million or more of the deal. A further ten corporates put in orders for $25 million or more.
The company's management carried out 69 one-on-one talks with fund managers in 11 days. The conversion rate was 80%. Proceeds will be used to expand the advertising network, general working capital and acquiring regional distributors.
Established in 2002, Focus Media is known as a 'segmented media company' satisfying its customers by using channels specifically tailored to their audience. The company specializes in showing advertising on LCD TV screens in the lift lobbies of commercial buildings.
Goldman itself invested $20 million in the company at an earlier stage, alongside British private equity group 3i, which invested $10 million. Japan's Softbank also invested $40 million. About 31% of the IPO shares were secondary and the 69% balance primary. The shoe will be split 50/50..
The company operated screens in 8,866 commercial location as of March this year, compared to just 754 in January last year. Specialists say it has a 70% market share for commercial building and 50% share of the supermarket segment.
"The company offers much lower rates than official state media, and the screens can be located by the point of sale (in super markets for example) for higher impact," says a specialist.
For the three months through March this year, Focus made $2.6 million on sales of $9.6 million, compared to a net income of $713,000 on revenue of $3.1 million for the same period last year.
Pricing was very aggressive, with the ADS price translating into a 2005 price earnings ratio of 33.7 times and 22.5 times 2006 earnings.
Fund managers say Goldman is forecasting net income of $20 million for 2006, and $30 million for the year after.
The company's focus is new, and there are few comps, but specialists looked at several traditional companies.
Beijing Media, a newspaper media company listed in Hong Kong trades at 17 times 2005 earnings and 14.7 times 2006. Phoenix TV trades at 31 times 2005 and 21 times 2006.
Clear Media, an outside billboard advertising company trades at 33 times 2005 and 25 times 2006. US outdoor advertiser Clear Channel trades at 24 times 2005 and 19 times 2006.
The Chinese advertising market is expected to see vigorous growth on the back of the liberalization of the tightly controlled media market.
"This was not a market driven play. In fact, the Nasdaq has lost 1.8% so far this year," comments one specialist. "Investors looked at the growth potential of this company within the China context and went for it."
Target Media, a similar company operating in the mainland is slated to list later this year.