February 21, 2005
In the public eye | South Portland-based Wright Express prepares for the state's first IPO in five years
By Andy Vietze
Nearly three-quarters of a billion dollars: That's how much Cendant Corporation made by spinning off Wright Express this month in the rare initial public offering of a Maine company.
In an attempt to streamline its empire, New York-based Cendant, a real estate and travel giant that owns such well-known companies as Avis and Budget rental cars, Days and Ramada inns, and Coldwell Banker, has been busy since last November selling subsidiaries that it considers to be outside its focus areas and buying new companies that it feels are a better fit. And Wright Express, which has grown from humble roots selling coal and ice to become one of the nation's leading providers of credit cards for vehicle fleets, is one of the firms it decided to let go.
Cendant announced its plans to spin off Wright Express in a Securities and Exchange Commission filing in November. The company sold 40 million shares at $18 each. But unlike many IPOs, which raise money for the company going public, the Wright Express IPO proceeds will go right back to Cendant. (Wright Express will see cash from the public offering only if its underwriters, led by J.P. Morgan, Credit Suisse First Boston and Merrill Lynch, exercise their option to buy six million additional shares.)
"It is unusual to have an IPO of this sort," says Bob Strong, professor of finance at the University of Maine. "It's not uncommon for a corporation to decide that one of its business lines is better off being out on its own, but what the firm typically does is give shares in that subsidiary proportionately to its shareholders; that's precisely what Cendant did with PHH," a mortgage and fleet service outfit Cendant spun off Jan. 31. However, "there's a little magic in IPOs in the eyes of some people," he says. "So it may be that management thinks you can preserve value better" by selling Wright Express in a straight IPO.
Wright Express' own views on the spinoff are unknown; spokesperson Jessica Roy says the company can't comment due to SEC restrictions. However, the firm's IPO prospectus, which it filed with the SEC last fall, gives some indication of the company's future. Wright management, headed by CEO Michael Dubyak, will remain unchanged, and the company will continue to be headquartered in South Portland. No layoffs are expected to take place for Wright's 611 employees, the vast majority of whom are located in Maine. And Cendant will continue to provide a number of services ˆ including human resources, employee benefits, telecommunications, internal auditing and IT ˆ to Wright during the transition.
In its IPO filing, Wright also said it plans to expand both its core credit card business, notably by broadening into the heavy truck industry, and its vehicle maintenance arm, which has been a much smaller part of its business. There are plenty of challenges, though. The company admits that its profits are closely tied to the price of gasoline, which has been on a rollercoaster ride in the past few years, and it's seeing competition from Houston-based U.S. Bank Voyager Fleet Systems, which has most government contracts sewn up, and in Brentwood, Tenn.-based Comdata Corp., which has a corner on the heavy-truck industry.
Analysts interviewed for this story think the sale will be good for both parties. Sanjay Ayer, an analyst who covers Cendant for Chicago-based mutual fund and equity tracking firm Morningstar, says selling Wright is wise for the real estate and travel giant. "My endorsement of it has little to do with Wright's performance as a business," he says, "since it's actually a very solid operation; instead it's part of Cendant's strategy to simplify its business." Ayer calls Wright "a fast grower," and estimates the firm's sales have grown at a five-year compounded rate of roughly 20%. He also says Wright "sports very nice profit margins margins." "It wasn't an insignificant business by any means," he says. "It just didn't offer the new Cendant much in terms of synergies."
Increased scrutiny
Cendant has focused on "synergies" in recent months, shedding companies including PHH. It's also been on a buying spree, purchasing companies including the online travel agency Orbitz. According to the Bergen (N.J.) Record, Cendant plans to use the proceeds of the Wright Express IPO for the purchase of Gullivers Travel Associates and Octopus Travel Group, two British travel firms. Ayer explains the company's thinking: "Often when companies own what can be viewed as a hodge-podge of businesses," he says "the shares can suffer from a 'complexity discount.' By selling non-core assets and streamlining the business those discounts can evaporate."
Brad McCurtain of Maine Securities Corp. in Portland thinks the sale also will be beneficial to Wright. "It's great news because the company will be showcased on its own as a public company," he says. "It's owned by a company that's a good fit for them ˆ there are a lot of synergies there ˆ but right now they're sort of buried among real estate and rental cars and all the other companies Cendant owns."
Still, there are uncertainties involved with going public. As a subsidiary of Cendant ˆ which posted revenues of $19.8 billion in 2004 ˆ Wright drew little scrutiny from analysts and investors. After the IPO, though, Wright Express will be monitored closely, and its financial details will be parsed by investors and the media to a new degree. "There'll be more attention paid to them directly," Strong of UMaine says. "But in terms of the day-to-day management of the business, it's probably not going to change a whole lot."
McCurtain, too, thinks that any growing pains will be easily weathered. "I don't think any of that will be a problem," he says. "I think it's great. We haven't had a Maine company go public since I-many in 2000."
Another Maine public company ˆ as opposed to a privately owned or family business ˆ will help Mainers in a variety of ways, McCurtain says. "If it's a family business, it tends to benefit only the family. If it's a publicly traded company, it benefits anyone who wants to buy shares and watch them grow," he says. "Plus, a company like this tends to offer stock options to employees, and that tends to put more dollars back into the community. And it gives Maine a little more credibility on Wall Street."
Changes in ownership are nothing new for Wright Express. The company has its roots in the early 20th century coal and ice hauling company A.R. Wright. It was founded in its current incarnation by Parker Poole back in the early 80s, when it became clear that the large vehicle fleets employed by businesses like FedEx and phone and cable companies could use a single processor to oversee and manage their gasoline bills.
Wright struggled for a few years while it attempted to reach a critical mass of gas stations and fleets, but it began turning a profit in the early 1990s. Its shareholders voted to sell the company in 1994, when it was purchased by Safeguard Services of Cheyenne, Wyo., and it was subsequently sold again to CUC International of Stamford, Conn., which eventually morphed into Cendant. Cendant offloaded Wright in 1999 to Avis Group Holdings, but reacquired the company in 2001 when it bought out Avis.
"It's a great story," says David Coit of North Atlantic Securities in Portland, who invested in the young Wright Express in 1985 and then sold his shares in the mid-90s. "The company was founded by Parker Poole on an idea and it obtained venture capital and grew and got picked up by a larger company and now it's being spun off as a public company ˆ it's the life cycle of a growth company here in Maine."
In an attempt to streamline its empire, New York-based Cendant, a real estate and travel giant that owns such well-known companies as Avis and Budget rental cars, Days and Ramada inns, and Coldwell Banker, has been busy since last November selling subsidiaries that it considers to be outside its focus areas and buying new companies that it feels are a better fit. And Wright Express, which has grown from humble roots selling coal and ice to become one of the nation's leading providers of credit cards for vehicle fleets, is one of the firms it decided to let go.
Cendant announced its plans to spin off Wright Express in a Securities and Exchange Commission filing in November. The company sold 40 million shares at $18 each. But unlike many IPOs, which raise money for the company going public, the Wright Express IPO proceeds will go right back to Cendant. (Wright Express will see cash from the public offering only if its underwriters, led by J.P. Morgan, Credit Suisse First Boston and Merrill Lynch, exercise their option to buy six million additional shares.)
"It is unusual to have an IPO of this sort," says Bob Strong, professor of finance at the University of Maine. "It's not uncommon for a corporation to decide that one of its business lines is better off being out on its own, but what the firm typically does is give shares in that subsidiary proportionately to its shareholders; that's precisely what Cendant did with PHH," a mortgage and fleet service outfit Cendant spun off Jan. 31. However, "there's a little magic in IPOs in the eyes of some people," he says. "So it may be that management thinks you can preserve value better" by selling Wright Express in a straight IPO.
Wright Express' own views on the spinoff are unknown; spokesperson Jessica Roy says the company can't comment due to SEC restrictions. However, the firm's IPO prospectus, which it filed with the SEC last fall, gives some indication of the company's future. Wright management, headed by CEO Michael Dubyak, will remain unchanged, and the company will continue to be headquartered in South Portland. No layoffs are expected to take place for Wright's 611 employees, the vast majority of whom are located in Maine. And Cendant will continue to provide a number of services ˆ including human resources, employee benefits, telecommunications, internal auditing and IT ˆ to Wright during the transition.
In its IPO filing, Wright also said it plans to expand both its core credit card business, notably by broadening into the heavy truck industry, and its vehicle maintenance arm, which has been a much smaller part of its business. There are plenty of challenges, though. The company admits that its profits are closely tied to the price of gasoline, which has been on a rollercoaster ride in the past few years, and it's seeing competition from Houston-based U.S. Bank Voyager Fleet Systems, which has most government contracts sewn up, and in Brentwood, Tenn.-based Comdata Corp., which has a corner on the heavy-truck industry.
Analysts interviewed for this story think the sale will be good for both parties. Sanjay Ayer, an analyst who covers Cendant for Chicago-based mutual fund and equity tracking firm Morningstar, says selling Wright is wise for the real estate and travel giant. "My endorsement of it has little to do with Wright's performance as a business," he says, "since it's actually a very solid operation; instead it's part of Cendant's strategy to simplify its business." Ayer calls Wright "a fast grower," and estimates the firm's sales have grown at a five-year compounded rate of roughly 20%. He also says Wright "sports very nice profit margins margins." "It wasn't an insignificant business by any means," he says. "It just didn't offer the new Cendant much in terms of synergies."
Increased scrutiny
Cendant has focused on "synergies" in recent months, shedding companies including PHH. It's also been on a buying spree, purchasing companies including the online travel agency Orbitz. According to the Bergen (N.J.) Record, Cendant plans to use the proceeds of the Wright Express IPO for the purchase of Gullivers Travel Associates and Octopus Travel Group, two British travel firms. Ayer explains the company's thinking: "Often when companies own what can be viewed as a hodge-podge of businesses," he says "the shares can suffer from a 'complexity discount.' By selling non-core assets and streamlining the business those discounts can evaporate."
Brad McCurtain of Maine Securities Corp. in Portland thinks the sale also will be beneficial to Wright. "It's great news because the company will be showcased on its own as a public company," he says. "It's owned by a company that's a good fit for them ˆ there are a lot of synergies there ˆ but right now they're sort of buried among real estate and rental cars and all the other companies Cendant owns."
Still, there are uncertainties involved with going public. As a subsidiary of Cendant ˆ which posted revenues of $19.8 billion in 2004 ˆ Wright drew little scrutiny from analysts and investors. After the IPO, though, Wright Express will be monitored closely, and its financial details will be parsed by investors and the media to a new degree. "There'll be more attention paid to them directly," Strong of UMaine says. "But in terms of the day-to-day management of the business, it's probably not going to change a whole lot."
McCurtain, too, thinks that any growing pains will be easily weathered. "I don't think any of that will be a problem," he says. "I think it's great. We haven't had a Maine company go public since I-many in 2000."
Another Maine public company ˆ as opposed to a privately owned or family business ˆ will help Mainers in a variety of ways, McCurtain says. "If it's a family business, it tends to benefit only the family. If it's a publicly traded company, it benefits anyone who wants to buy shares and watch them grow," he says. "Plus, a company like this tends to offer stock options to employees, and that tends to put more dollars back into the community. And it gives Maine a little more credibility on Wall Street."
Changes in ownership are nothing new for Wright Express. The company has its roots in the early 20th century coal and ice hauling company A.R. Wright. It was founded in its current incarnation by Parker Poole back in the early 80s, when it became clear that the large vehicle fleets employed by businesses like FedEx and phone and cable companies could use a single processor to oversee and manage their gasoline bills.
Wright struggled for a few years while it attempted to reach a critical mass of gas stations and fleets, but it began turning a profit in the early 1990s. Its shareholders voted to sell the company in 1994, when it was purchased by Safeguard Services of Cheyenne, Wyo., and it was subsequently sold again to CUC International of Stamford, Conn., which eventually morphed into Cendant. Cendant offloaded Wright in 1999 to Avis Group Holdings, but reacquired the company in 2001 when it bought out Avis.
"It's a great story," says David Coit of North Atlantic Securities in Portland, who invested in the young Wright Express in 1985 and then sold his shares in the mid-90s. "The company was founded by Parker Poole on an idea and it obtained venture capital and grew and got picked up by a larger company and now it's being spun off as a public company ˆ it's the life cycle of a growth company here in Maine."
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