By Freya Berry
LONDON (Reuters) - Over-50s holidays to insurance group Saga [IPO-SAGA.L] has set out plans for a 2.2 billion pound ($3.7 billion) stock market flotation, seeking a sizeable sale to retail investors in one of London's biggest listings so far this year.
Saga, which has grown from its origins as a travel company in the seaside town of Folkestone to a major insurance player, said on Wednesday it was planning to raise a net 550 million pounds to pay down debt.
The flotation - being trailed in a British TV ad campaign fronted by former soap opera star Larry Lamb - represents the latest in a slew of listings which have pushed proceeds from initial share offerings up 221 percent from the same period in 2013, according to data from Thomson Reuters.
Saga's planned 550 million pounds float of 25 percent of its equity would value the entire group at 2.2 billion pounds and would cut its debt to around 700 million pounds.
It will also allow private equity owners Permira [PERM.UL], Charterhouse [CHCAP.UL] and CVC [CVC.UL] to begin selling down their investment, while delivering a multi-million pound windfall to some of its executives.
Saga said it made core earnings or EBITDA of 222.4 million pounds in the year through January on underlying revenue of 1.2 billion. A source familiar with the deal said that it could trade at between 18 and 20 times earnings on its launch.
The company's focus on the over-50s has led it into some unusual areas, including regular dieting tips and a dating service. That has made its FTSE company classification tricky.
A company's allocated sector determines its comparable peers, which plays a part in determining analysts' views of a company's performance and the multiples it should be trading at.
But Saga's cross-sector stance was highlighted by a decision to list the firm in the specialized consumer services sub-sector - putting it in the unlikely company of funeral provider Dignity , the only other main market member of that list.
"There is clearly a debate as to whether it gets classified in financials or whether it goes under consumer services," said a banker at a leading City firm. "Arguably there isn't a natural home within financials for it."
Media reports had speculated that Saga was targeting a juicier valuation by shedding its insurance label. Direct Line , the last major UK insurance company to float, is trading at 11.8 times earnings, against Dignity's 18.2.
However the banker added that unlike Direct Line, Saga is more an insurance broker than underwriter. Insurance brokers tend to trade at far higher multiples - UK firm Jardine Lloyd Thomson is currently at 22.7.
"It would be naïve to say that it (the multiple) isn't a consideration, but at the end of the day I don't think the company wants to be squeezed into financials when it doesn't fit with the heritage of the brand," the banker said.
The company is following in the footsteps of Royal Mail and Direct Line with a sizeable retail offering. The size is yet to be confirmed, but Saga said private investors would have to apply for at least 1,000 pounds of shares to be eligible.
"A substantial retail offering is central to our plans," said Andrew Goodsell. "Saga is high loyalty, and it's a portal into the world of people aged over 50 in the UK."
Goodsell said 700,000 of its 2.1 million customers had expressed an interest. "These people behave like it's a mutual – it's their company," said a source familiar with the deal, adding that Saga was unique globally for its focus on the over-50s. "Brands have focused on young people, while these people (Saga) are unashamedly focused on the 'grey pound'". The listing is being led by Bank of America Merrill Lynch , Citigroup , Credit Suisse and Goldman Sachs . JP Morgan and UBS are joint bookrunners, while Investec is acting as joint lead manager and Mizuho [MZHFSI.UL] as co-lead manager.
(Editing by Jane Merriman and David Holmes)