A bookbuild process conducted by UBS AG and Citigroup ahead of credit bureau Veda's December IPO has been oversubscribed by six times.
The bookbuild process helps the IPO lead managers gauge investor demand for the IPO in advance of the company's debut on the Australian Stock Exchange. The IPO, aiming to raise $341 million, plans to issue 270 million shares at $1.25 each. This should value the company at around $1 billion and place Veda on a price to earnings ratio of around 12.5.
Veda offers a number of services to consumers. Since opening in 1967 as the Credit Reference Association, Veda has grown to become Asia-Pacific's leading data intelligence and insights company. The primary role of the company is as a data collector. Tt then sells that data to people interested in buying a house or car, among other things.
Veda's primary service is to offer customers the ability to view their credit file, which lenders such as banks and credit card providers use to determine whether an individual should be granted a loan. In addition, Veda offers car buyers the ability to check previous sales, outstanding finance, written-off status, insurance claims, known odometer readings and valuations for second-hand cars.
Veda also offers three other services, Secure Sentinel, My Insurance Passport, and TenancyCheck. These give users the ability to securely cancel registered financial cards and passports, find out what insurance firms see when the user applies for insurance, and a service to check the history of someone applying to tenant a property.
The prospectus is expected to be issued this month and will give further insight into the quality of earnings and the breakdown for each business segment. Veda is expected to float on the ASX in early December.
Veda is currently owned by Sydney-based Pacific Private Equity, after being purchased in 2007 for $974 million. The float follows a number of IPOs on the ASX earlier this year, including that of iSelect (ASX: ISU), 99 Wuxian (ASX: NNW) and OzForex (ASX: OFX). Each initially rose but all three have now fallen to levels close to, or below their IPO prices. With a number of IPOs expected in the next few months, competition for shareholder funds will be approaching a multi-year high following a dearth of IPOs after the GFC.
Foolish takeaway
IPOs can be risky if investors choose the wrong business or are forced to pay a price above the fair value. When more information is released about the IPO, investors will be able to make up their mind based on the recent and projected growth, and makeup of sales between the divisions. The credit business should form the largest part of sales, however unless you have reason to believe that your credit score is poor, there is little reason to use their service.
Last time this writer incorrectly filled out an online credit card application for ANZ Bank (ASX: ANZ), the rejection email was adorned with a prominent link to Veda's website, despite the fact that the rejection had nothing to do with credit ratings. This strategy could work, especially with consumer confidence on the rise, which may result in renewed enthusiasm for debt from the major banks, NAB (ASX: NAB), Westpac (ASX: WBC), ANZ, and Commonwealth Bank (ASX: CBA). Time will tell, however strong investor demand indicates that the share price should rise when it floats.
