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Five Below IPO a windfall for sponsors

by David Carey | Published July 11, 2012 at 4:00 AM

If Five Below Inc.'s pending $115 million-plus initial public offering goes as planned, its private equity backers would ring up big profits.

The Philadelphia-based discount retailer said in a Securities and Exchange Commission filing Monday, July 9, that it expects to offer 9.62 million common shares at $12 to $14 each.

Half would be sold by the company, and half by existing stockholders led by Advent International Inc., a 62.5% owner.

An offering priced at the $13 a share midpoint of the range would give Advent a 140% unrealized gain on the $192.9 million it invested in October 2010.

The Boston PE firm paid that sum for a 30.72 million-share holding, which at $13 a share would be worth $399.3 million. In addition, Advent pocketed $62.2 million of a $99.5 million dividend Five Below paid stakeholders in May.

Two other PE shops would notch yet higher percentage returns.

Philadelphia's LLR Partners Inc. injected $20 million in the company in May 2005 and teamed with Blue 9 Capital of New York to invest a further $17 million in September 2008.

The pair, which collected $13 million in the May dividend, own a combined 13.1% position worth $83.4 million at $13 a share. They also raked off a large part of a $196.7 million dividend Five Below paid in 2010 using Advent money. Exactly how much they received isn't disclosed in the filing.

A trendy, youth-oriented retailer founded in 2002 by chairman David Schlessinger and CEO Thomas Vellios, Five Below sells everything from T-shirts and sunglasses to duct tape and mini lockers, all priced at $5 and below.

As of April 28, the end of its latest fiscal quarter, it had 199 stores in 17 states, averaging 7,500 square feet per store. The stores are concentrated in the Northeast and Midwest.

Revenue has soared in recent years, increasing 159% between 2009 and the 12 months ended April 28, to $321.5 million. Adjusted trailing Ebitda was $45.3 million.

An IPO priced at the midpoint would give Five Below, which has working capital surplus, a market capitalization of $701.5 million. Its enterprise value would be about $697 million, or 15.4 times Ebitda.

The company expects to use its $54 million in anticipated net IPO proceeds to retire about half its roughly $100 million of long-term debt.

Advent would unload 2.85 million shares, dropping its ownership to 51.7%. LLR, Blue 9, Schlessinger and Vellios similarly would sell a fraction of their stock.

Underwriting banks led by Goldman, Sachs & Co., Barclays plc and Jefferies & Co. would have an option to buy up to an additional 1.44 million shares from Advent and other selling stockholders to cover overallotments.

Five Below is tapping Pepper Hamilton LLP's Barry M. Abelson and John P. Duke for legal advice.

Sullivan & Cromwell LLP attorney Robert E. Buckholz represents the underwriters.

Five Below intends to list its shares on the Nasdaq Global Select Market under the symbol FIVE.

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