The Smiler ride at Alton Towers

Shares in Merlin Entertainments, the owner of Madame Tussauds, Legoland and Alton Towers, rose nearly 6 per cent in their London stock market debut on Friday, valuing the private equity-backed company at almost £3.4bn.

Merlin shares started trading at 333.75p, having been priced at 315p each and briefly rose to 355p before settling back to 347p at close.

The world’s second-largest theme park operator by admissions after Walt Disney had originally set a range of 280p-330p for the flotation, but closed the offer early because of strong demand.

That marks a stark contrast to investor appetite in February 2010, when Merlin shelved its listing plans because of market volatility and chose instead to sell a stake to buyout group CVC, valuing it at £2.25bn.

Merlin said 87.5 per cent of the sale had gone to institutional investors such as pension funds, while individual retail investors had received 12.5 per cent of the shares.

“We are delighted with the strong response from both institutions and retail shareholders to our offer,” said Nick Varney, chief executive.

The heavily subscribed sale of a 30 per cent stake raised total gross proceeds of £957m for the company and its selling shareholders. The amount raised could rise to £1bn, including a so-called over-allotment option, Merlin said.

Merlin will use proceeds from the offer to pay down debt, which stands at about £1.2bn.

Private equity owners Blackstone and CVC sold some of their shares, as did Kirkbi, a Danish family-owned holding and investment company, which owns the Lego and Legoland trademarks and 75 per cent of the Lego Group.

Following the flotation, Kirkbi will hold 29.9 per cent of the company. Blackstone will hold 22.6 per cent and CVC 13.1 per cent. The company’s management will own 4.4 per cent.

“When we bought Merlin in 2005, it had annual sales of less than £50m and a strategy to roll out its brands across Europe. Today, it is a global industry leader and its annual revenues exceed £1bn,” said Joe Baratta, global head of private equity at Blackstone.

Merlin’s offer comes amid a revival of the European IPO market. Shares in Numericable, the French private equity backed cable company, have increased 10 per cent on their first day of trading on Friday. It follows the privatisation of postal operator Royal Mail, whose shares soared in the days following its market debut.

IPOs in the UK total $12.9bn via 49 deals so far this year – already the highest annual volume and activity since 2007, when $16.5bn was raised via 124 IPOs in the full year, according to data from Dealogic.

Spending at theme parks worldwide declined during the recession, but business is picking up as companies seek to entice more visitors with new attractions and the global economy continues its slow recovery.

Merlin runs 99 attractions in 22 countries across four continents, including the London Eye, Alton Towers and Chessington World of Adventures in the UK, and SeaWorld in California. The number of visitors to Merlin’s parks has grown 11 per cent a year since 2008.

Rival theme park operator Walt Disney has seen its profits buoyed by higher visitor spending at its US theme parks.

Private equity firm Apax Partners created Merlin by backing a £57m management buyout of Vardon Attractions in 1998. Hermes Private Equity bought the company for £72.5m in 2004, before selling it to Blackstone for £102.5m a year later.

Blackstone has so far made a 25 per cent annual return on its investment.

Retail investors who applied for the minimum £1,000 have been allocated 317 shares, worth £998.55. Those who applied for more than £1,000 of shares will receive 317 shares, plus 55 per cent of the remaining amount they applied for.

Timeline: the road to IPO

Merlin’s listing steps, and each year’s major new wax figures

Photographs copyright Madame Tussauds

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