Exclusive-Czech defence firm CSG nears IPO decision that would boost M&A war chest

PRAGUE, Jan 7 (Reuters) - Czech arms and ammunition firm Czechoslovak Group (CSG) has discussed with banks floating around 15% of its shares in a potential initial public offering, with a decision yet to be reached, owner and Chair Michal ​Strnad told Reuters.

Strnad said being publicly traded would offer CSG the option to finance with its shares future acquisitions in ‌a sector that has witnessed a slew of deals.

He added that banks were recommending listing around 15% of the company.

"It depends on many factors but I'm listening to ‌them carefully and forming my own opinion," he told Reuters at CSG's headquarters in Prague. The proposed size of the potential flotation has not previously been reported.

CSG is Europe's fastest-growing defence firm in terms of annual revenue growth in a global arms market worth $2.7 trillion in 2024, according to the latest data from the Stockholm International Peace Research Institute.

DEFENCE STOCKS IN DEMAND

The sector's fast growth and increased NATO spending in the wake ⁠of Russia's war in Ukraine have prompted other ‌defence companies including Franco-German tank maker KNDS to pursue IPOs to tap into strong investor interest in defence stocks.

BNP Paribas, Jefferies, JPMorgan, and UniCredit were the global coordinators for CSG's potential IPO, Strnad said, confirming earlier ‍source-based reporting from Bloomberg.

The decision whether to go ahead with the IPO, likely set for Amsterdam, could be in the near future, he said.

RUBBING SHOULDERS WITH EUROPEAN DEFENCE GIANTS

Strnad declined to comment on how much the company could raise in any IPO or at what valuation, but cited German defence giant ​Rheinmetall as a guide.

"Look at our results, compare them with our natural European peer, which you know who it is, and add ‌a discount because it is an IPO, you don't have the German army (as customer), and this will get you somewhere," Strnad said.

"But of course, we don't expect a valuation like Rheinmetall's."

If CSG was valued using Rheinmetall as a guide, it could have an enterprise value between 34 billion and 50 billion euros, before applying any discount, according to Reuters calculations based on LSEG data. Valued close to the sector average, CSG would be worth around 22 billion euros, the calculations show.

Rheinmetall's enterprise value of 21 times next 12-month earnings before interest, taxes, ⁠depreciation and amortisation (EBITDA), according to LSEG data, is well above the industry median ​of 13.7.

Bloomberg has previously reported a targeted valuation of 30 billion euros for ​CSG, citing sources.