Goldman Sachs, Morgan Stanley, UBS best positioned to win Virgin IPO deal, Barrenjoey in the mix

BofA and Barrenjoey also have access to hefty balance sheets – which allow them to underwrite large capital markets offerings – could also work in their favor if they attract Virgin to their business.

Well-funded investors from outside Australia will be key to filling an order book for a major IPO like Virgin. The airline’s relisting on the ASX could swell to over $1 billion.

Virgin Australia chief executive Jayne Hrdlicka said the airline could post revenue of about $2.5 billion for the first half of this year, with a profit margin of five percent, the Financial Review reported on Tuesday.

The pitch

That would be more than the $2.2 billion Virgin reported for the full fiscal year 2022.

The notable turnaround is a major talking point for the winning investment bank or banks when offering the IPO to stock investors who have not received any new stock offerings in the last year.

Bankers will also tout the global airline industry’s recovery from the pandemic, particularly the recent success of local competitor Qantas.

Last November, Australia’s largest airline made a profit of more than $1 billion thanks to increased demand for air travel and higher fares as international borders reopened. Qantas’ share price has risen nearly 37 percent over the past six months.

Banks’ loyalty to Qantas, meanwhile, is likely to reduce the number of firms clamoring for a Virgin IPO.

As Street Talk previously reported, Macquarie Capital, Citi and JPMorgan are linked to Qantas through previous transactions.

For example, JPMorgan and Macquarie helped Qantas raise $1.36 billion in equity in June 2020.

This transaction came at a difficult time for international airlines, which have been impacted by lockdowns to contain the COVID-19 outbreak and border closures.

For banks, they offered a variety of financing options — including equity raising and revolving lines of credit — for travel and leisure companies hit by the slowdown in tourism in the early years of the pandemic.

With some serious competitors barred from the bidding process, Virgin-affiliated banks are on deck to take part in a deal that has been buzzing the capital markets.

Morgan Stanley, UBS and Goldman Sachs have previously worked with Virgin and Bain Capital, the private equity firm that bought the airline out of administration in 2020.

The addition of former Goldman Sachs chief executive Pippa Downes, who worked at the US bank for about six years until 2011, to Virgin’s board could also prove useful in guiding Goldman’s IPO.

She will join the board as part of a pre-IPO review and brings “significant international banking and capital markets experience,” CEO Ms Hrdlicka told Virgin staff on Tuesday in an internal memo seen by the Financial Review.

Josh Frydenberg, another Goldman banker and former Federal Treasurer, sat alongside Ms Hrdlicka at last Sunday’s Australian Open Men’s Final, which would have provided ample opportunity to showcase the investment bank’s capital markets capabilities.