The owner of Madame Tussauds waxworks and the Legoland theme parks has launched the latest in a new wave of London flotations, in a move that will value the stakes of its private equity backers at billions of pounds.
Merlin Entertainments, which is 98% owned by the Lego family trust Kirkbi and the buyout firms Blackstone and CVC, said it plans to raise up to £800m via the share offer that will value it at up to £3.34bn.
The move is the latest in what is being seen as a revival in the London flotations market, coming after the privatisation of Royal Mail where investors have immediately made large profits. London has seen 61 flotations so far this year, according to the analyst firm Dealogic, raising a total of £8.7bn from floats that have included estate agent Foxtons and the insurer Esure. For the whole of last year, London flotations raised £3.5bn via 46 issues.
Merlin, which also owns Alton Towers, the London Eye, and Warwick Castle, is perhaps best known in the UK as the owner of the waxworks museum on Marylebone road in central London, which traces its UK roots back more than 200 years. Madame Tussaud brought her exhibition on tour to Britain in 1802, and established The Baker Street Bazaar in 1835, while the attraction moved to its current site in 1884. It claims to have received 500 million visitors since its creation.
Despite the waxworks being widely known, Merlin's other brands are its biggest money earners. In total the company runs 99 attractions across 22 countries, taking £1bn in revenue last year from 54 million visitors and making £98m of profit. Of those venues, six of Europe's top 20 most visited theme parks are run by Merlin, according to analysts Aecom, three of which – Alton Towers in Staffordshire, Legoland in Windsor and Thorpe Park in Chertsey – are based in Britain.
Now the holding company is set to go public, valuing the 36% stake currently held by Kirkbi at about £1.2bn, Blackstone's 34% at £1.1bn and CVC's 28% at £900m, although the firms will be cashing in £600m worth of shares. Merlin was last valued in 2010 when CVC acquired its stake, and the whole business was worth £2.25bn.
Senior management and around 2,000 employees, who will end up owning about 8% of the firm are also preparing for windfalls, particularly chief executive Nick Varney, and finance director Andrew Carr who completed a private-equity backed management buyout of the company in 1999 to create Merlin. Since then the group has acquired the Tussauds Group, which also included Chessington World of Adventures and Thorpe Park, plus the Italian theme park Gardaland.
"Our destiny was always to be a public company," said Varney as he recalled a previous aborted effort to float his management buyout, plus a series of different private equity owners, including Apax and Hermes, before settling on the current shareholders. "Being bought every three years can be disruptive. Now is the time for long-term share ownership".
It is also the time to re-jig its corporate structure that means the company is based in Luxembourg. The exact tax that the company pays in the UK, therefore, is tricky to find, although the company seems to have realised that such arrangements have the potential of upsetting its customers. It plans to domicile the company in the UK after the float, when it is understood that its effective tax rate will move towards 28%.
A spokesman said: "Merlin Entertainments pays the correct level of tax in the countries, or jurisdictions, in which we operate, in relation to our capital structure".
On the flip side, however, there are those who argue Merlin has been a huge contributor to the UK economy. A spokesman for VisitBritain, the national tourism agency, said: "Merlin attractions have brought more than a million pounds in revenue so far this year to VisitBritain's shop and around 14% of our sales have come from the top-selling Merlin products. Our sales figures suggest that Merlin's attractions continue to attract overseas visitors, with numbers showing no signs of abating."
Of the remaining flotation proceeds, around £200m will be used to reduce the group's debt, the company said, while the company also has unveiled expansion plans.
Next year Merlin will open a huge Madame Tussauds near Tiananmen Square in Beijing, while in the US there are plans for a Madame Tussauds and a "dungeon" for San Francisco, a Sealife Centre in Charlotte, North Carolina and a small indoor Legoland discovery centre in Boston.
Merlin plans to float up to 30% of its shares, with up to 15% targeted at members of the public. The group is also trying to tempt customers into buying the shares, by offering members of the public spending at least £1,000 on the shares a 30% discount for one year on theme park annual passes.
The discount has been dismissed as a gimmick by analysts – Merlin is currently offering the public a 25% discount on its website – but Varney insisted it was "a pretty good deal".
"We think that is a nice thing to offer to people who want to invest at a retail level," he said. "But the real reason to invest is to own a part of the company that owns Legoland, the London Eye and Madame Tussauds, which has got an expanding international footprint and a very strong growth trajectory."
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image: © Nikos Roussos