IPO Watch: Symetra Financial

Ann C. Logue | Nov 06, 2007 6:20am EST | Comment

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Symetra Financial
www.symetra.com
(NYSE: SYA)
Scheduled for Nov. 12
$1706.3 million post-money valuation

Although the capital markets have been queasy of late, it’s been a hot time for financial services companies to go public. Pzena Capital Management, Rodman & Renshaw Capital, and Duff & Phelps recently priced their IPOs, and hedge fund Och-Ziff has filed to go public the week of Nov. 12, just like Symetra Financial. Why? It’s probably some combination of cashing in on strong past profits and raising capital to handle the growth that’s expected as baby boomers age, save money and look for help managing their retirement.

Symetra Financial was formed in 2004 when Safeco sold its life insurance, retirement insurance, and mutual funds business to an investor group led by White Mountains Insurance Group and Berkshire Hathaway. The price then was $1.35 billion, and the mutual funds were then transferred to Pioneer Investments. The selling shareholders, including White Mountains, Berkshire Hathaway, and others, are offering 39.5 million shares. With a filing range of $18 to $20 per share, they’ll be receiving between $711 million and $790 million for approximately 43% of the company, which represents a nice profit—especially because current shareholders received a $200 million special dividend in October, paid for in part by issuing $150 million in debt.

Symetra’s business generated $159.5 million in net income in 2006 and another $137.6 million for the first nine months of 2007. That works out to earnings per share of $1.72 and $1.49, respectively, based on the shares outstanding after the deal closes, and the company has long paid a regular quarterly dividend of $0.09 that it plans to continue when it is public.

Symetra makes most of its money from group medical, disability and life insurance policies offered as employee benefits. The medical products are generally stop-loss and limited service plans that supplement a self-insurance program. It offers annuities for qualified retirement plans and individuals as well as some individual life insurance policies. All products are sold through independent insurance agents and financial planners. While it does not have the overhead associated with its own distribution, Symetra has to compete for a presence with these people if it hopes to have more policies sold.

This is a big offering, and Berkshire-Hathaway’s presence in the investor group is certainly attracting some attention. But it’s also of interest for some very basic reasons. No matter how much the markets roil, people will need a place to put their money. Most people generate a substantial amount of their wealth from their human capital—their jobs—and they look to their employers to provide them with basic insurance and retirement benefits. As long as people need to work and employers need to retain good staff members, there’s going to be a need for Symetra’s products.

Recent IPOs:

Ulta Beauty (www.ulta.com, Nasdaq: ULTA; Oct. 24; $1.79 billion market cap): Ulta has 211 store and beauty salon locations in 26 states as well as a website selling cosmetics and hair care products. For the fiscal year ending Feb. 1, 2007, the company has $755.1 million in revenue and $22.5 million in net income, a net margin of 3.0%—right in line with a growth retailer. The deal was oversubscribed and the share price has almost doubled since the IPO’s pricing.

CNInsure (www.cninsure.net; Nasdaq: CISG; Oct. 30; $528 million post-money valuation): Want cheap toys? Go to China. But for an IPO, the American capital markets are the best. This Chinese insurance brokerage firm picked Morgan Stanley to lead its IPO. The company has 11,000 sales people working out of 170 offices, and it sells auto, property, casualty, and life policies and handles claims-adjusting services for several different Chinese and international insurance companies. It was a hot offering, oversubscribed and up more than 50% in the first day of trading.

Upcoming IPOs:

Internet Brands (www.internetbrands.com; Nasdaq: INET; Nov. 12; $497.9 million post-money valuation): Internet Brands has been in business since 1998, but it’s just going public now. It designs and operates real estate, automotive and travel websites. Its best-known business is probably CarsDirect.com. Internet Brands also licenses its data and technology to other sites, especially automotive sites. It’s profitable, posting net income of $38.8 million in 2006 on revenue of $84.8 million.

Reliant Technologies (www.reliant-tech.com; Nasdaq: RLNT; Nov. 12; $241.4 million post-money valuation): Aging baby boomers looking for lovely skin are flocking to dermatologists, who are happy to oblige. Reliant makes a line of lasers designed to treat wrinkles and correct uneven pigmentation. It’s losing money right now, in part due to high marketing expenses, but the company hopes to lever that spending into future growth.