KKR-backed Pepper Money Plans Australian Year’s Biggest IPO

KKR-backed non-bank lender Pepper Money is set to outline plans to become the Australian year’s biggest initial public offering.

Hot on the heels of Peter Warren Automotive’s strong debut, and fresh from Australian Clinical Labs’ $408.6m raising, Pepper’s expected to go to fund managers with a $450m to $500m IPO priced at 10.5 times to 11 times profit as early as Thursday.

It is understood Pepper and its brokers Credit Suisse, Goldman Sachs and RBC Capital Markets have already locked in some support from a small group of funds at the mooted price, giving KKR the confidence to push ahead with the listing plans.

Pepper management, headed by CEO Mario Rehayem, is due to start meeting fund managers from Thursday, and the brokers are expected to run an institutional bookbuild late next week. A hefty retail syndicate’s also lined up to start selling the deal.

Should Pepper’s IPO pass muster with investors, it would become the biggest float in 2021 to-date. It would also be significantly larger than rival non-bank lender Liberty Financial Group’s $320.7m IPO in December and fellow KKR portfolio company Latitude Group Holdings, which raised $200m to list last week.

Funds were told KKR and Pepper’s board, which includes shareholder representative and chairman Michael Culhane, were expected to finalise the mooted deal’s price and structure on Wednesday night.

The deal’s expected to be priced at a small discount to both Liberty Financial Group, which is trading just north of 11-times profit (or 14.5-times if you account for tax differences between the two companies), and Latitude, which raised at 11.6-times FY20 cash profit.

A deal at 10.5 times to 11 times profit would value Pepper at up to $1.3bn on a market capitalisation basis. Reunion Capital is advising Pepper on the listing.

Pepper’s launch comes after car dealership group Peter Warren Automotive gave the IPO market a much needed shot in the arm this week. Peter Warren shares finished up 19.3 per cent on day one (Tuesday) and climbed another 2.9 per cent on Wednesday. Jefferies and Morgans have done the lion’s share of the trades, according to Bloomberg data.

The deal comes one week after Pepper’s brokers sent detailed pre-deal marketing reports to fund managers. The reports revealed the company expected $356.3m net interest income in 2021, which would be up a modest 1 per cent from 2020. Profit from continuing operations was due to increase 14 per cent to $120.7m.