The sponsors that own Spanish hotel booking software business HBX Group (Hotelbeds) are happy to offer a sizeable discount to its main peer Amadeus [BME:AMS] in the hope of the stock trading up to allow a more valuable monetization down the road, sources tell ECM Pulse.

The IPO will be a mostly primary affair, with the company disclosing that it will sell up to EUR 725m new shares to reduce the group’s leverage from 3.2x at the end of FY 2024 to approximately 2.5x, on an adjusted net debt to adjusted EBITDA basis.

“There isn’t much interest in a big secondary sale at IPO,” said one source on the deal, noting that sponsors are likely holding back their stakes for sell-downs later, once the stock has had a chance to trade up after IPO.

In this way, the sellers will be mirroring the strategy of Swedish sponsor EQT [STO:EQT] in its disposal plan for Swiss skincare company Galderma [SWX:GALD]. EQT priced a majority primary share IPO of the Swiss firm in early 2024 at a large discount to peers, starting a true monetisation process later, once the stock had proven itself.

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EQT is also one of three major sponsor shareholders in HBX as well, alongside Cinven and CPPIB.

A second source close to the IPO noted that sponsors on the deal were deliberately trying to follow a “Galderma strategy” and that investors are starting to engage on the deal on that basis.

“Even before the price range is released, people are engaging with this on the idea that this will be a sensible price,” the source said.

Amadeus discount

The key metric to watch, when the price range is likely released later this week, will be the discount to what the market has deemed HBX’s closest peer, Spanish travel technology business Amadeus.

While investors deem the business cash-generative and like its scale, they are not going to pay an Amadeus multiple for it at IPO, one of the sources said.

Although not all indications are in yet, there seems to be growing consensus among large institutional investors that the company should be valued around 9x the company’s 2025 EBITDA, this source added. The company is likely to forecast 2025 EBITDA of around EUR 400m, another source said.

Hitting this level would translate to a post-money valuation of around EUR 3.6bn and roughly a 30% discount to Amadeus, which trades between 13x and 14x 2025 EBITDA.

Full-year results between the two are not directly comparable, given different end-year dates, HBX reports its year-end in September, while Amadeus reports full-year results in December.

HBX reported EBITDA of around EUR 363m in 2024, and Amadeus FY24 EBITDA is expected to be around EUR 2.3bn, according to data from Fidessa provided by Factset.

Investor indications could of course go up the valuation range in the final days of bookbuild. However, the market consensus around the deal is that it should aim to follow EQT’s Swiss model.

“People are looking at how Galderma was managed are looking to implement that playbook,” said an ECM banker.  “People understand that if you price a deal properly, and have the right asset, then you can generate liquidity and momentum.”

EQT is of course one of the three funds invested in HBX, but the consensus from sources on the deal seems to be that all sellers are onboard with this strategy.

Go long

Pricing at a discount and then selling down through subsequent block trades is likely designed to satisfy a core group of mutual fund investors that often anchor the European IPO market.

These long-term buyers act as core shareholders and not only invest in the IPO but tend to follow through in subsequent block trades or corporate capital-raising activity once the company is public.

The second source noted that while some investors have offered indications of interest closer to Amadeus trading levels, long-only funds have largely centered around the 9x 2025 EBITDA number.

Should HBX be successfully priced and trade up, then it will give the European, and wider EMEA, IPO market a significant boost after a strong finish to 2024, when several deals were priced and many now trading up, albeit in some cases after some early volatility.

With a strong pipeline of deals scheduled for 2025, the market is pinning early hopes on HBX and that a prudent approach from its sellers pays off.

Cinven, CPPIB and HBX declined to comment; EQT did not respond to requests for comment by the time of publication.