The IPO Buzz: Atmus Filtration Prices IPO at $19.50 Mid-Point

M is for mid-point. Atmus Filtration Technologies, Inc. (ATMU) priced its IPO at $19.50 – the mid-point of its $18.00-to-$21.00 range – on 14.12 million shares – to raise $275.43 million on Thursday night (May 25, 2023). Atmus Filtration’s stock opened at $21.67 – up $2.17 or up about 11.1 percent from the IPO price – in its NYSE debut today –  Friday, May 26, the last trading day before the long Memorial Day weekend. Atmus was trading at about $22.27 – up $2.77 or about 14.2 percent from its IPO price – on volume of about 4 million shares at about 12:50 p.m. EDT.  Atmus closed today at $21.65 – up $2.15 or up about 11 percent from its IPO price – in its first day of NYSE trading.

Stocks rallied – with the Dow up over 300 points for a 1 percent gain at 33,081,31 and the NASDAQ up over 270 points – or 2.2 percent – at 12,970.75 – on investors’ hopes that a deal was near in Washington to raise the U.S. debt ceiling and avoid default by the June 1 deadline.

The IPO’s mid-point pricing gave Atmus Filtration a market cap of $1.6 billion – about the middle of the range for its competitors or peers, including Donaldson (DCI).

Goldman Sachs, J.P. Morgan, Baird, BofA Securities, Wells Fargo Securities and HSBC were the joint book-runners.

Diesel engine maker Cummins (CMI) spun off Atmus Filtration Technologies, its profitable truck engine filter and parts business, in the IPO.

The IPO proceeds will go to pay off some of Cummins’ debt in a “debt-for-equity exchange” arrangement – with the debt consisting of commercial paper or a loan held 50-50 by J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC, respectively, according to a note on the cover of the prospectus. Neither Cummins nor Atmus Filtration will receive a penny of the IPO proceeds.

After the IPO, Cummins still controls Atmus Filtration through its ownership of about 83 percent of the voting power of the filter company’s outstanding stock.

Cash, Not Flash

Atmus Filtration Technologies, based in Nashville, makes fuel filters, lube filters, air filters, hydraulic filters, crankcase ventilation, coolants, chemicals and other products for commercial trucks and off-highway heavy equipment, which includes agricultural vehicles (John Deere tractors, for instance) as well as, construction, mining and power generation vehicles and equipment. Atmus Filtration’s largest customers are Cummins, PACCAR (Kenworth and Peterbilt trucks) and the Traton Group (Navistar), the prospectus says.

“They make a necessary product,” a seasoned IPO investor said, referring to Atmus Filtration’s business as the reason why he liked the IPO.

About 84 percent of Atmus Filtration’s 2022 net sales came from the aftermarket, which consists of replacement parts and accessories for routine maintenance and repair of commercial trucks and off-highway vehicles and heavy equipment. About 16 percent of Atmus Filtration’s 2022 net sales came from its business to supply filters and parts for new commercial trucks, off-road vehicles and heavy equipment as part of its OEM business with a clientele that includes Cummins, Daimler, Deere, Komatsu, PACCAR, Traton and Volvo, according to the prospectus. (OEM stands for original equipment manufacturer.)

There’s nothing sexy about the truck and off-road equipment filters business.

But what Atmus Filtration lacks in flash, it makes up for with cash.

The prospectus showed that the company booked steady growth in revenue and profits over the past three years.

For the 12 months that ended March 31, 2023, Atmus Filtration earned net income of $188.0 million on revenue of $1.6 billion.

“It’s vanilla ice cream, and I’m fine with that,” a veteran IPO investor says.

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