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The theme park operator, which is backed by private equity firm Blackstone Group and Dubai International Capital, was due to press the go button on a formal stock market process next week.
However, Blackstone’s decision to pull the listing of airline and hotels business Travelport last night after institutional investors failed to support it at the required price has meant Merlin’s IPO is no longer viable. A source close to Merlin added that the company was still evaluating all its options.
Merlin’s strong 8pc annual growth and its £230m of earnings before interest, tax, depreciation and amortisation (Ebitda) made it a rare jewel in the crown amongst a long pipeline of private equity IPOs.
Its decision not to seek a market listing despite performing strongly in the face of the recession underlines a growing crisis in the IPO market where a long pipeline of private-equity owned businesses have been clamouring for a financial exit.
Retailer New Look – owned by Permira and Apax – has already filled its intention to float and sent out research to perspective investors but is now considering whether to progress with its plans.
At a crisis meeting held by the company’s board yesterday the company decided not to pull plans and to continue to try to make the flotation work.
However, insiders say that it will become increasingly difficult to press forward given the market’s loss of appetite for new listings.
In the end, Travelport was derailed not only by market fluctuations that stemmed from sovereign default fears, but also from company specific issues. These were a mixture of the company’s heavy debt levels and the emergence of a controversial incentive plan for the company’s executives.
Travelport’s larger rival Amadeus is also believed to be reviewing its plans to raise €3bn on the Spanish stock exchange in a listing that could value the group at €8bn.
The company, owned by Cinven and BC Partners, had been on course for a flotation in the first half of this year and was seen as a comparable business to Travelport.
Earlier this week BC Partners successfully floated its French healthcare business Medica in Paris. Despite the float price being lowered before the IPO, the shares have since risen about 10pc.
Fund managers, which have been very cautious about debuts by private-equity backed companies, say that not enough equity is left on the table when the debt levels are brought down to fit with the stock market.
“We have pumped £80bn into the stock markets already – but these were for companies where we already owned equity,” said Andy Brough, a fund manager at Schroders.
“In these private equity floatations, where is the upside for investors if all we are doing is re-financing the companies where the PIK notes are eating up everything in sight?”
With a debt to Ebitda ratio of five times, Merlin is among the most under-geared companies in the leisure sector.
Sources say there is no immediate need to refinance the business, which gives its backers the option of taking their time in looking for the deal that gives the group the best long term returns.
Blackstone bought Merlin in 2005 for £102.5m in the buy-out house's smallest financial investment. It backed chief executive Nick Varney’s ambitious plans to consolidate the theme park sector and within three years it had added the £1bn Tussauds Group, Legoland and Italian theme park Gardaland to its London Dungeons and Sea Life portfolio.
In the process it grew the £7m of ebitda to £230m, giving the group eight years of double digit growth.
Earlier this year the group paid $22.3m (£13.8m) for Cypress Gardens, a US theme park close to Orlando, where it is looking to invest more than $100m to convert it into the the world’s biggest Legoland.
Visitors to attractions Merlin has owned for more than a year rose 17pc in 2008 to 38 million, just as the industry worldwide saw attendance fall by 0.4pc.
