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Silicon Valley listings rip up the rule book

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US companies are taking greater control over their stock market debuts by turning to direct listings and new technologies to price their shares, pushing back on the strictures of initial public offerings that have defined equity capital markets for decades.

Software companies Palantir and Asana both sidestepped the traditional IPO process to join the stock market through direct listings this week, building on similar moves from Slack last year and Spotify in 2018. Several other companies have chosen to go public through mergers with listed blank-cheque vehicles known as Spacs.

Taken together, these changes form a new playbook for companies looking to list on the stock market, promising executives a greater say in the exercise while dimming the role of investment banks.

“There is a desire for companies to have a more open and transparent process,” said Neil Kell, chairman of global equity capital markets for Bank of America.

Direct listings let existing shareholders, including employees, sell their stock on the open market on the first day of trading, but do not allow companies to raise capital by selling newly created shares. This is a departure from the IPO, where investment banks typically allocate new stock to institutional investors, such as mutual funds and hedge funds, picking out attractive investors likely to hold the shares for the long term.

Recent direct listings typify the kind of company that is able to list shares without raising money: well-known technology names with prominent backers. The oldest of the four, Palantir, was founded 17 years ago and had raised billions of dollars from private investors over that time.

“We aren’t direct listing zealots,” said Shyam Sankar, Palantir chief operating officer. But the process provided the company closer discussions with potential investors and “a little more control” compared with a traditional IPO, he added.

“We felt the price discovery was much better and the cost of capital was lower,” said Dustin Moskovitz, chief executive of Asana.

Shares in Palantir closed below their opening price on Wednesday, while Asana’s stock rose more than 10 per cent on the day.

Column chart of Proceeds raised in special purpose acquisition companies ($bn) showing US Spacs zoom to record in banner year

The big difference between direct listings and an IPO — the raising of capital — may soon disappear. In August, US securities regulators granted the New York Stock Exchange approval for companies to raise money alongside a direct listing. But the decision has been challenged by a group representing institutional investors, and companies have yet to test the new approach.

The approach would skip the step of meting out shares to specific investors, a task handled by the banks in an IPO, limiting the ability for companies to select investors that may be seen as attractive, such as mutual funds that may hold on to the stock for the long term. Instead, new shares would be floated in an auction on the first day of trading.

“I’m completely puzzled by the concept of a company that wants to directly raise capital, perhaps take on significant incremental liability, and have no say whatsoever over the share price or the first round of shareholders,” Lise Buyer, an IPO adviser in Silicon Valley, said of the proposed direct listing process.

Banks are also employing technology to refine the IPO. Last month, video game software company Unity raised $1.3bn after would-be investors submitted the prices they were willing to pay for blocks of stock into a portal managed by Goldman Sachs, the lead underwriter on the listing. The company was able to set its price after the bids came in, and had discretion on how to allocate the capital.

Column chart of Proceeds raised, excluding Spacs ($bn) showing US IPO market is at its busiest in six years

“It is the option that puts the most control in management’s hands, although certainly they will still take advice from the bankers,” said Ms Buyer, who advised Unity on its IPO.

Unity ultimately settled on a slightly lower price than the top end of investor demand, to make sure certain investors were included, according to people briefed on the process.

“There is a tremendous amount of interest in moving the process forward,” said Matt Walsh, who leads technology, media and telecoms equity capital markets for Credit Suisse, a lead underwriter on the Unity deal.

Mr Walsh said executives felt that they had a greater view of shareholder demand with this approach. “It’s a huge step forward.”

The recent spurt of innovation comes alongside the thunderous rise of Spacs, which raise capital from investors and sit on the stock market until they merge with a target company, giving it a listing.

Spacs have a history of targeting underperforming and sometimes fraudulent businesses, but of late, these so-called blank cheque companies have attracted high-profile sponsors, including Bill Ackman, who in July raised $4bn in the largest Spac to date.

Investors have ploughed $41.7bn into US Spacs so far this year, triple the sum raised last year, the prior high water mark, and close to the $52.8bn raised by IPOs.

Mr Walsh said Spacs offered another way for companies “to remove inefficiencies” from their stock market debut. “The commonality between direct listings . . . is that they establish a true demand curve and set a clearing price for a company’s shares.”

Additional reporting by Richard Waters in San Francisco



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JD.com’s logistics arm seeks to raise up to $3.4bn in Hong Kong IPO

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JD Logistics, the delivery unit of Chinese ecommerce group JD.com, will seek to raise up to $3.4bn in what would be one of Hong Kong’s largest initial public offerings this year.

The company’s decision to list follows a boom in online shopping during the coronavirus pandemic. But a tougher regulatory environment for Chinese technology groups and a recent fall in the shares of SF Holding, one of JD Logistics’ largest competitors, pushed the company’s proposed IPO price down by about a quarter, according to a person close to the deal.

JD Logistics will sell 609.2m shares at HK$39.36-HK$43.36 ($5.07-$5.58) each. The final price will be set on Friday and the shares are expected to start trading on May 28, according to terms of the deal seen by the Financial Times.

The IPO would be the second largest in the city this year after Kuaishou, a Chinese viral video app, raised $5.4bn in February, and would be the third blockbuster listing by JD.com in Hong Kong in the past year. JD Health, which sells pharmaceutical and healthcare services online, completed a $4bn IPO in December and JD.com carried out its own secondary listing in the territory last June, which raised a similar amount.

Hong Kong has benefited from a flood of high-profile listings by Chinese technology companies in recent months and has hosted more than $20bn of IPOs this year, according to data from Bloomberg.

JD.com created its logistics and delivery arm in 2007 and spun it out into a standalone unit a decade later. The company operates more than 900 warehouses in China and provides delivery and warehousing services to third parties.

But the group is among those under pressure as China increases scrutiny of its largest internet groups. Last month, officials told 13 of the country’s biggest tech companies, including fintech subsidiaries of JD.com, Tencent and ByteDance, to “rectify prominent problems” on their platforms. The push was seen as a sign that regulatory focus on the sector was spreading beyond Jack Ma’s Ant Group, after the $37bn IPO of the fintech company was scuppered last November.

Separately, shares in SF Holding, China’s largest listed delivery company, fell sharply last month after a quarterly loss rattled investors and prompted scrutiny over the high valuations placed on Chinese companies.

“Competition in China’s logistics space is fierce, especially after [Indonesian company] J&T Express entered the market, which has had an impact on other logistics companies’ performance and will hit JD,” said Li Chengdong of Haitun, an ecommerce think-tank.

JD Logistics was initially the delivery arm of JD.com’s ecommerce site but an increasing portion of its business comes from ferrying packages on behalf of third parties.

Cornerstone investors in the JD Logistics IPO, including technology group SoftBank’s Vision Fund, Temasek Holdings, Singapore’s state-backed investment company, and investment firms Tiger Global and Blackstone have subscribed to about $1.5bn of the shares, according to the terms of the deal.

Bank of America, Goldman Sachs and Haitong International are the joint sponsors for the listing.

Additional reporting by Ryan McMorrow in Beijing

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Volvo Cars: race to net zero marks revival of IPO plan

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Volvo Cars has been waiting at the lights for years. The Swedish carmaker’s journey back to the stock market was halted in 2018 when Chinese owner Geely scrapped flotation. A subsequent plan to merge and float the two businesses was dropped in February. Now the company is considering an initial public offering. Getting a green signal will require a sensible price.

The last IPO plan stalled when investors baulked at the $30bn sought by Geely. Volvo has advanced since then, particularly on electrification. Shares in peers such as Daimler, BMW, Stellantis and VW trade on an average trailing enterprise value-to-ebitda multiple of 9. If Volvo achieved the same, it would have an enterprise value of almost $20bn, using figures from S&P Capital IQ. The company is likely to argue that its success in China merits a higher valuation. But its operating profit margins are about half those of peers. 

Profitability should improve, as battery advances cut the cost of making electric cars. But Volvo has already benefited from a supportive owner. Geely, which paid $1.8bn in 2010 to buy Volvo from Ford, has given it access to funds and shared the capital costs of developing new platforms. That helped the return on capital shoot up to an average of 9 per cent over the past six years, well above that of BMW and VW. 

A lot depends on continued collaboration with Geely. An outright merger was deemed too complicated because the complexity of the ownership structure made it difficult to agree a price acceptable to Geely’s minority shareholders. But the Chinese company will retain a big stake. The two businesses will jointly own the legacy internal combustion engine business and each owns half of Polestar, the premium electric brand. 

Polestar aims to produce the first genuinely net zero car by 2030. That, and other goals, means that Volvo has some of the most ambitious climate plans in the car industry. Those green credentials could add some extra oomph. Even so, too racy a valuation will impede its chances of a successful float.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up



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Commodities broker Marex looks to list on London Stock Exchange

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One of the brokers with rights to trade on the historic trading floor London Metal Exchange is heading for an initial public offering as commodity markets enjoy the biggest boom since the early 2000s.

Marex, a brokerage controlled by two former Lehman Brothers investment bankers, said on Friday it was considering listing on the main market of the London Stock Exchange.

Should it proceed, Marex said the offer would consist of a sale of shares by existing investors and that it was aiming for a free float of at least 25 per cent, meaning it would be eligible for inclusion in widely followed FTSE indices.

London-based Marex employs about 1,000 people and is one of nine members of the Ring, the LME’s historic open outcry trading floor that is now threatened with closure after more than 140 years. It has a 16 per cent market share on the LME.

The company is controlled by JRJ Group, a private equity firm founded by Jeremy Isaacs, the former head of Lehman’s European operations, and Roger Nagioff, the bank’s ex-head of global fixed income.

JRJ has a 41 per cent indirect economic interest in Marex. It is expected to reduce that stake through the London IPO although it will remain a large shareholder.

People familiar with the plans said Marex was seeking a valuation of $650m-$800m. The company is about half the size of US rival Stonex Group, which has a market capitalisation of almost $1.4bn. The IPO could come as soon as June.

The company, which has been expanding aggressively through acquisitions, made pre-tax profits of $55m in the year to December, up from $46.6m a year earlier, on net revenue of $414.7m.

However, in 2018 pre-tax profits were just $13.4m after Marex took $31.9m of legal provisions related to a warehouse receipts fraud.

Marex makes more than half its revenue from commodity hedging services that help big commodity producers, consumers and traders manage price risk. Commissions from the group’s top 10 clients increased by 17 per cent to $49m in 2020.

“The attractiveness and resilience of our business model is demonstrated by our latest set of results, which showcase continued strong performance despite the obvious macro headwinds,” said Marex chief executive Ian Lowitt, who was paid $4m last year. His basic salary is almost twice that of the LSE’s CEO David Schwimmer.

JRJ Group and its partners Trilantic Capital Partners and BXR Group acquired a majority stake in Marex in 2010. A year later it bought Spectron to create one of the biggest commodity brokers in the world. The company has been up for sale for several years as JRJ has sought an exit from its investment.

It emerged in November that Marex had appointed Goldman Sachs and JPMorgan to help advise on a possible stock market listing. One of its no- executive directors is Stanley Fink, former CEO of hedge fund Man Group.

Marex said on Friday that acquisitions and expanding into “adjacent products” would continue to form a “central pillar of its strategy”. In November, Marex acquired Chicago-based equity derivatives firm XFA.

Commodity markets have boomed over the past year on the back strong demand from China, a post-pandemic pick up in other big economies and bets on the “greening” of the world economy.



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