Downer a pointer for CIMIC’s Ventia ahead of IPO?

CIMIC is assessing strategic options for Ventia, of which it owns 47.5pc.

Analysts at Macquarie Group believe the $4 billion Australian listed services company Downer is the most accurate comparable for CIMIC’s services company Ventia, which is slated for an initial public offering by the end of the year.

Macquarie Capital has been hired to float Ventia, as first revealed by DataRoom on Monday, along with JPMorgan and Barrenjoey Capital Partners.

JPMorgan and Barrenjoey’s shareholder, Barclays, are both existing lenders to CIMIC.

CIMIC confirmed on Monday it had appointed advisers to assess strategic options for Ventia, of which it owns 47.5 per cent.

Global buyout fund Apollo also owns an interest the same size while management owns the remainder.

Ventia is one of the largest telecommunications maintenance providers in Australia, from which it generates about 30 per cent of its revenue, along with transport services, defence estate contracting, facilities management and social infrastructure.

The resources industry is understood to account for about 10 per cent of its revenue.

The deal is being discussed at a time CIMIC’s parent company wants to pay down debt.

CIMIC’s majority owner with about 73 per cent is Hochtief, which is controlled by Spain’s ACS, and the group remains under pressure to sell assets to pay down loans following the €6.5 billion acquisition of Abertis in 2018.

Macquarie analysts said Downer was currently trading on 15.6 times its forecast 2021 financial year net profit, 12 times its earnings before interest and tax and six times its earnings before interest, tax, depreciation and amortisation including its debt.

CIMIC is currently trading on 15.8 times its forecast net profit for the 2021 financial year, similar to its 15 times ratio over the long term.

In the 2020 financial year, Ventia generated $4.6bn in revenue with an 8 per cent EBITDA margin, implying annual EBITDA of $368m.

CIMIC’S acquisition of Broadspectrum, formerly Transfield Services, almost doubled the size of Ventia’s revenue.

Should the group head to the market, the understanding is that there are hopes the business will list with a value including debt of somewhere between $3bn and $3.5bn, with a selldown of about $1bn likely.

The float has been a long time coming, with owners plotting an IPO as far back as 2018, as first revealed by DataRoom.

Apollo has been eager to exit, but a sales process run in 2017 by Credit Suisse failed to eventuate in a deal.

CIMIC was believed to be in talks after that to buy back Apollo’s half of the business but the deal collapsed, with CIMIC said to be unhappy about having substantial debt consolidated on its balance sheet through an acquisition of Ventia.

Macquarie Capital sold half of CIMIC’s stake in Ventia to Apollo in 2014 in a deal valuing the operation – then called Leighton Services – at about $1bn.