Why REV Group’s IPO Is Taking Off

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REV Group Inc. (NYSE: REVG) entered the markets more strongly than most were expecting on Friday morning. The company priced its 12.5 million shares at $22 apiece, above the expected price range of $19 to $21 per share. However, the company would actually enter the market at $25.75 before settling to its current price level. The entire initial public offering is valued up to $316.25 million, including an overallotment option of 1.875 million shares.

The underwriters for the offering are Goldman Sachs, Morgan Stanley, Baird, BMO Capital Markets, Credit Suisse, Deutsche Bank, Jefferies, Wells Fargo and Stifel.

This company is a leading designer, manufacturer and distributor of specialty vehicles and related aftermarket parts and services. It serves a diversified customer base primarily in the United States through three segments: Fire & Emergency, Commercial and Recreation.

REV Group provides customized vehicle solutions for applications, including: essential needs (ambulances, fire apparatus, school buses, mobility vans and municipal transit buses), industrial and commercial (terminal trucks, cut-away buses and street sweepers) and consumer leisure (recreational vehicles and luxury buses).

Its brand portfolio consists of 26 well-established principal vehicle brands, including many of the most recognizable names within its served markets. Several of its brands pioneered their specialty vehicle product categories and date back more than 50 years. The firm believes that in most of its markets, it holds the first or second market share position.

REV Group listed some of its financial highlights as follows:

  • Net sales were $1,721 million, $1,735 million and $1,926 million for fiscal year 2014, fiscal year 2015 and fiscal year 2016, respectively, which represents a compound annual growth rate, or “CAGR,” of 3.8%.
  • Net income was $1.5 million, $23 million and $30 million for fiscal year 2014, fiscal year 2015 and fiscal year 2016, respectively, which represents a CAGR of 173%.
  • Adjusted Net Income was $14 million, $34 million and $55 million for fiscal year 2014, fiscal year 2015 and fiscal year 2016, respectively, which represents a CAGR of 56%.
  • Adjusted EBITDA was $62 million, $90 million and $127 million for fiscal year 2014, fiscal 2015 and fiscal year 2016, respectively, which represents a CAGR of 27%.

The company intends to use the net proceeds from the offering to redeem its outstanding senior secured notes and pay the related call premium, as well as to pay for other outstanding debt. The remainder will be used for working capital and general corporate purposes.

Shares of REV Group were last seen at $25.33, with over 6.5 million shares having moved on the day just before noon Eastern. The stock is up 15% from its original pricing. The range of the day so far is $24.50 to $25.81.

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