(Update1)
2010-02-08 18:18:24.70 GMT

(Adds QuinStreet’s for-profit education marketing business
and government proposal to ban colleges from paying recruitment
companies from ‘Relative Value’ section.)

By Michael Tsang, Nikolaj Gammeltoft and Craig Trudell
Feb. 8 (Bloomberg) — Blackstone Group LP and Frank
Quattrone are returning to the U.S. initial public offerings
market after half of this year’s IPOs were postponed or delayed
and stocks posted their longest slump since July.
Graham Packaging Co., owned by Blackstone, is selling
shares that would give the plastic-container maker a so-called
enterprise value of 9.21 times earnings before interest, taxes,
depreciation and amortization. That’s 59 percent more than the
industry median. QuinStreet Inc., the Internet advertising
company advised by Quattrone, will ask buyers to pay almost
twice as much per dollar of earnings as the median.
The offerings by some of the best-known names on Wall
Street this week come after U.S. companies from Imperial Capital
Group Inc. to FriendFinder Networks Inc. shelved initial sales,
while the four that completed deals cut them by an average of 23
percent as the Standard & Poor’s 500 Index fell for four
straight weeks.
“Fear that we see now in the market makes it very
difficult for IPOs because there is no appetite for risk,” said
Michael Yoshikami, who oversees about $1 billion as chief
investment strategist for YCMNet Advisors in Walnut Creek,
California. “Even these recognizable names will face resistance
in the IPO market. Volatility is bad for the public offering
market regardless of who is behind” the deals, he said.

Five Deals

Graham Packaging is the first U.S. IPO of 2010 for
Blackstone, the world’s largest private-equity firm. QuinStreet
marks the return of Quattrone, 54, who led Credit Suisse First
Boston’s technology banking group during the Internet boom. The
sales may help make this week the busiest for U.S. IPOs since
September. Five are scheduled, according to Bloomberg data.
Solar Capital Ltd. in New York plans to offer shares today.
Fort Lauderdale, Florida-based Patriot Risk Management Inc. will
follow tomorrow after delaying its IPO last week. Generac
Holdings Inc. of Waukesha, Wisconsin, will sell stock Feb. 10.
While Barclays Plc of London estimates that initial U.S.
sales will triple to $50 billion this year, Ironwood
Pharmaceuticals Inc.’s offering was the only IPO of four
scheduled for last week to be completed. The Cambridge,
Massachusetts-based drug developer cut its offer price by 30
percent in the biggest reduction for a U.S. sale this year.

Imperial Capital, FriendFinder

Imperial Capital of Los Angeles shelved what would have
been the first IPO by a U.S. investment bank since 2007. Boca
Raton, Florida-based FriendFinder, the publisher of Penthouse
magazine, said it postponed due to “market conditions.”
Graham Packaging, 75 percent-owned by Blackstone, will sell
23.33 million shares at $14 to $16 each tomorrow, according to
its Feb. 4 filing with the Securities and Exchange Commission.
The York, Pennsylvania-based company makes Tide detergent
products for Procter & Gamble Co. in Cincinnati and Ragu pasta
sauce jars for London- and Rotterdam-based Unilever.
Graham will raise as much as $373 million before expenses.
At the midpoint price of $15 a share, Graham would have a market
capitalization of $1.01 billion. The company’s enterprise value,
or the sum of its stock and debt minus cash, would be $3.09
billion, compared with $335.6 million in Ebitda for the 12
months to Sept. 30.
The enterprise value-to-trailing 12-month Ebitda ratio of
9.21 is 59 percent higher than the median 5.81 times for 150
makers of paper and plastic containers, Bloomberg data show.

Blackstone-Backed IPOs

Graham will be the second U.S. company majority-owned by
Blackstone offered through an IPO after Stephen Schwarzman, 62,
the firm’s chief executive officer, said in October that there
were as many as eight companies that it planned to take public.
For Knoxville, Tennessee-based Team Health Holdings Inc.’s
IPO in December, Blackstone accepted a 25 percent discount and
dropped its portion of the sale. Blackstone spokesman Peter Rose
said in an e-mail that the firm couldn’t comment on Graham’s IPO
due to regulatory restrictions.
“There has been a disconnect between issuers and what
buyers are willing to pay,” said Paul Bard, director of
research at Greenwich, Connecticut-based Renaissance Capital
LLC, which has followed new offerings since 1991. “We’re still
waiting for that breakout IPO, to start to see those more
exceptional growth stories we thought we’d start to see in 2010.
There really hasn’t been anything that’s gotten investors
excited.”

Cisco, Netscape

QuinStreet’s sale will be the first Quattrone has taken
part in since the NASD accused him of giving out IPO shares to
favored executives to win investment banking business and
federal prosecutors charged him with obstructing justice in
2003.
A U.S. judge formally approved dismissal of charges against
Quattrone in August 2007. He started San Francisco-based
Qatalyst Partners, an advisory firm focused on technology
companies, in March 2008.
Quattrone was one of the most successful technology bankers
during the 1990s. He helped take Cisco Systems Inc. of San Jose,
California, public in 1990 and arrange the 1995 IPO of Mountain
View, California-based Netscape Communications Corp. Quattrone
didn’t return telephone or e-mail messages seeking comment.
QuinStreet runs marketing Web sites for clients such as
for-profit education companies and gets paid when visitors click
for more information and become customers. The Foster City,
California-based company is raising $190 million in the first
Silicon Valley IPO of 2010. The advertiser on Feb. 10 will ask
for $17 to $19 each for its sale of 10 million shares, according
to its Feb. 2 regulatory filing and Bloomberg data.

Relative Value

Based on a market capitalization of $808 million implied by
its initial sale, QuinStreet would be valued at 39.4 times its
net income of $20.54 million last year, Bloomberg data show.
That compares with the 19.8 times earnings for 27 online
marketing and information companies globally.
More than 50 percent of revenue in QuinStreet’s latest
fiscal year came from generating leads for its education-related
clients. The company said revenue may decline if the government
decides to stop allowing schools to compensate recruiters based
on the number of students they enroll, according to proposals in
a U.S. Department of Education draft release last year.
The government is seeking to scrap exceptions, known as
“safe harbors,” of a 1992 law that bans U.S. colleges from
giving incentive payments to recruiters based on success in
securing enrollments. The elimination “could create uncertainty
for our education clients and impact the way in which we are
paid by our clients and, accordingly, could reduce the amount of
net revenue we generate,” QuinStreet said in its filing.

‘Hurry Up’

Its largest customer, Oakbrook Terrace, Illinois-based
DeVry Inc., which runs for-profit college courses, has already
“retained an advertising agency and has reduced its purchases
of leads from us,” according to the company’s filing.
“The next month will be disappointing for IPOs as raising
capital gets incrementally harder,” said Lawrence Creatura, a
Rochester, New York-based manager at Federated Investors Inc.,
which oversees $390 billion. “If volatility continues to rise
it would seem reasonable for anyone aspiring to do an IPO to
either hurry up, postpone it or be willing to concede on
price.”

For Related News and Information:
IPO results and calendars: ECDR
League tables: LEAG
Top deal stories: TOP DEAL
Legal adviser rankings: LALT

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