Overview

Gardner Denver Holdings (NYSE:GDI) filed an S-1/A with the Securities and Exchange Commission for its planned initial public offering.

The company intends to sell 41.3 million shares at a marketed price range of $23 to $26 in a $1.01 billion offering. The company also has an additional 6.195 million shares as an overallotment option for its underwriters.

If GDI prices at the midpoint of its proposed range, the company could have a market capitalization of $4.8B.

The joint book-running managers for the IPO are Goldman Sachs & Co., Citigroup, UBS Investment Bank, KKR, Simmons & Company International, Deutsche Bank Securities, Baird, Credit Suisse and Morgan Stanley. The co-managers are William Blair, Stifel, HSBC Corp., Macquarie Capital, Credit Agricole CIB and Mizuho Securities.

Business overview

Gardner Denver Holdings Inc. is a manufacturer of flow control and compression equipment along with their associated parts and services. The company's products are sold under a variety of different leading brand names. The company reports that it has more than 155 years of engineering experience and has loyal customers in more than 175 countries. The company is headquartered in Milwaukee, Wisconsin.

Executive management team overview

Vicente Reynal has served as the chief executive officer of Gardner Denver Holdings Inc. since Jan. 2016 and as a member of its board of directors since Feb. 2017. Reynal has also served as a member of the board of directors of Gardner Denver Inc. since Jan. 2016. He joined the company in May 2015 as the president of the industrials division.

Previously, Reynal worked for 11 years at the Danaher Corporation (NYSE:DHR), serving in increasingly responsible roles. Before that, Reynal held several executive positions at Thermo Fisher Scientific (NYSE:TMO) and AlliedSignal Corp. He holds a Bachelor of Science in mechanical engineering from the Georgia Institute of Technology and a Master of Science in mechanical engineering and technology and policy from the Massachusetts Institute of Technology.

Philip T. Herndon has served as the chief financial officer of the company since Oct. 2016. He joined Gardner Denver in Jan. 2016 as the CFO of the industrials division. Herndon previously served as the CFO of Capital Safety Inc. from Nov. 2012 to Aug. 2015. Before that, he was the vice president of finance for the Sealed Air Corporation (NYSE:SEE) from 2011 to 2012. He worked as the vice president of business development and as the corporate controller at Diversey Inc. from 2007 to 2011. He holds a Bachelor of Business Administration from Indiana University and a Master of Business Administration from Marquette University.

Financial highlights and risks

For the year that ended on Dec. 31, 2016, the company reported it had total revenues of $1.9394 billion, gross profits of $716.7 million and a net loss of $31.3 million. For the year that ended on Dec. 31, 2015, the company reported it had total revenues of $2.1269 billion, gross profits of $779.1 million and a net loss of $352 million. The company was acquired by KKR (NYSE:KKR) in 2013 for $3.74 billion, and KKR will retain a majority ownership following the IPO.

Gardner Denver Holdings reports that it has multiple risk factors for investors. It reports that it conducts more than half of its business overseas and is subject to the regulations in those countries as well as to the vagaries of the global economy. The company intends to spend $575 million of its proceeds to redeem all of its notes from its senior credit facility and $335.3 million to repay its debts under its dollar term loan facility.

Assuming Gardner Denver prices at the midpoint of its proposed price range, it would trade at a P/S ratio of 2.4x. This is slightly higher than its peer group of large manufacturers of compression, vacuum, and blower products (principal competitors include: Atlas Copco AB (OTCPK:ATLKY), Ingersoll-Rand PLC (NYSE:IR), Colfax (NYSE:CFX), Flowserve Corporation (NYSE:FLS), IDEX Corporation (NYSE:IEX), Accudyne and Kaeser Compressors, Inc.).

Conclusion: Consider A Modest Allocation

Gardner Denver Holdings brings in an impressive amount of revenues, but it has had a history of losses in the past few years.

The losses did decline significantly from 2016 to 2015. Its plan to use its proceeds to pay off its debts should free up the company and help it to grow.

We recommend that investors consider modest allocations of the IPO.