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Clover Health is latest Spac deal for Palihapitiya

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Former Facebook executive Chamath Palihapitiya is to merge his latest blank cheque company with a Google-backed healthcare insurer in a $3.7bn deal. 

Mr Palihapitiya’s Social Capital Hedosophia III, which raised $828m in April, will merge with Clover Health, it was announced on Tuesday. It is the third such deal for Mr Palihapitiya, who has used his special purpose acquisition vehicles to take public Virgin Galactic, the space travel company, and property start-up Opendoor.

Clover, which provides insurance services to about 50,000 elderly people via the US government-backed plan Medicare, will receive a $1.2bn cash infusion. That includes the money raised by the Spac as well as $400m in investor commitments led by Mr Palihapitiya himself and institutional investors such as Fidelity Investments and Senator Investment Group. 

As part of the deal Clover shareholders will receive up to $500m, with the remaining proceeds to be used by the company. 

The wave of takeovers led by Spacs further underscores how the rise of a once unusual financial investment vehicle is now fuelling a boom in mergers and acquisitions despite the fallout from the coronavirus pandemic and an uncertain economic and geopolitical environment.

Spacs have become a popular alternative to the traditional initial public offering process, allowing companies faster access to financing and public markets, and Mr Palihapitiya has been at the centre of the boom. Several well known Wall Street figures such as former Citigroup dealmaker Michael Klein have also raised cash through multiple vehicles.

Clover was launched in 2013 by Vivek Garipalli, the insurer’s chief executive, together with a small group of investors who were seeking to disrupt the Medicare system through the use of technology. Google has been an investor since 2017.

Clover’s proprietary software technology is used by patients to scout for affordable healthcare services covered by their insurance plan. 

Doctors use the data processed by Clover’s machine-learning system, which collects health information from patients, to deliver better care to consumers, it says. 

The injection of new capital by Social Capital Hedosophia will allow Clover to grow its customer base at a particularly critical time, as the coronavirus continues to affect millions of people hit by the pandemic.

Clover recently reached a partnership agreement with Walmart, the world’s largest retailer by revenues, to set up joint Medicare plans in the US state of Georgia. Depending on the success of the partnership, Walmart could agree to expand the offering across the US. 

“I believe Clover is uniquely positioned to disrupt the entire Medicare Advantage market as well as expand into new and exciting opportunities in Original Medicare,” Mr Palihapitiya said in a statement on Tuesday. 



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Robinhood soars after retail traders flock to shares

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Robinhood updates

Robinhood, the trading app used by many retail investors to drive the furious rally in “meme stocks” early this year, has gained characteristics of a meme stock itself.

Shares of the brokerage rose 50 per cent to close at $70.39 on Wednesday, giving it a market capitalisation of $58.9bn. The volatility prompted multiple trading halts on the Nasdaq exchange, with Robinhood earlier in the day having surged as much as 82 per cent.

The rise came less than a week after Robinhood listed in a disappointing initial public offering. This week’s reversal reflected the embrace of the stock by retail investors on social media and the new availability of options contracts tied to the company’s shares, traders and analysts said.

By 4pm in New York, more than 171m shares had changed hands.

Robinhood’s commission-free transactions attracted legions of retail investors with time and money to spare during the pandemic. The California-based company’s app was a central venue for trading so-called meme stocks earlier this year, as customers organised on social media platforms such as Reddit to bid up stocks such as the distressed theatre chain AMC and the video game retailer GameStop.

But the company also angered many customers in January when it curbed trading in several heavily shorted stocks to meet a margin requirement from its clearinghouse. Some day traders relished the company’s rocky debut on the stock market last week, when it fell 8.4 per cent in one of the worst performances for a flotation of its size.

Momentum picked up in recent days as some big-name investors bought into the stock, including Cathie Wood, who manages the investment fund Ark Invest.

Since the IPO, investor sentiment in Robinhood shares has brightened on social media sites such as Reddit, according to retail investor sentiment tracker Breakout Point. Mentions of its ticker on Reddit surged on Wednesday morning.

Retail investors on Reddit began rallying around the goal of a $60 share price — up from $35.15 on Friday — and there was “considerable cheering for Cathie” Wood, said Ivan Cosovic, founder of Breakout Point.

“It was a very hated IPO in the retail world, but Cathie bought and some retail investors on the sidelines decided to give it a try,” he added. “The rest is Fomo,” or “fear of missing out”.

Line chart of Share price ($) showing Robinhood shares surge in volatile trade

Data provider Vanda Research noted retail traders had begun to turn heavily towards the stock on Tuesday, helping send the shares up 24 per cent to close above its listing price for the first time.

Options trading in Robinhood’s shares also began on Wednesday, according to Chris Murphy, co-head of derivative strategy at trading company Susquehanna International Group. The derivatives, which allow traders to speculate on the potential moves in a stock, have become particularly popular with retail investors in the past 18 months.

Dealers selling bullish call options to investors would typically buy Robinhood stock to hedge their risk, pushing the market in an upward direction.

The gain on Wednesday lifted Robinhood’s market valuation above hundreds of blue-chip US companies including carmaker Ford, foods company Kraft Heinz and asset manager T Rowe Price.

When asked on the morning of the IPO if he thought Robinhood would become a meme stock, co-founder Vlad Tenev said: “I don’t know if people have understood the ramifications of what high retail participation in the markets means, but I think fundamentally it’s a very good thing and we are excited to be a part of it.”

An earlier version of this article incorrectly stated that options trading began on Tuesday



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Weber slashes IPO pricing in signal of cooling market

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IPOs updates

In the end, it was an initial public offering that was served blue, even as a 20-foot-tall grill was installed outside the New York Stock Exchange.

Weber, the barbecue behemoth, late on Wednesday agreed to a cut-price listing as it finalised its flotation, selling fewer shares than initially expected at a price below a range it had marketed to investors, according to a person briefed on the matter.

The Illinois-based company, founded in 1952 and sold to merchant bank BDT Capital Partners in 2010, priced 18m shares in the flotation at $14 apiece. The IPO raised $252m for the group, dramatically below expectations set late last month as it marketed the offering to big money managers. At the time it hoped to raise as much as $797m. BDT will retain voting control after the listing.

The deal sealed Weber’s market capitalisation at just under $4bn. It landed amid a bumper period for new US listings, with more than $100bn raised by traditional companies so far this year — a record pace — according to data provider Refinitiv.

However, while the $50tn US stock market has hit a series of new highs, institutional investors have struggled to keep pace with the deluge of new offerings, a fact mirrored as other funding markets have dried up. Some have sat out recent listings, after investing large sums in IPOs earlier this year.

In recent days, other stock offerings have been postponed or seen poor first day trading. Last week Clarios, the car battery manufacturer owned by Brookfield, postponed its float, pointing to market conditions, while produce company Dole slashed the size of its IPO.

The lacklustre showing for Weber may undercut a maxim embraced by investors since the coronavirus pandemic upended consumers’ routines: that the backyard is the new living room.

Many of the Americans who raced to buy up homes in leafy hamlets across the country also indulged in relatively large purchases such as pools, outdoor furniture and grills.

“These are businesses that benefited from the stimulus money and the increased level of purchasing power that consumers had because it allowed them to pull forward a little bit of demand,” said David MacGregor, an analyst at Longbow Research.

Weber’s revenues grew 18 per cent to $1.5bn in its past fiscal year, while its profits climbed 77 per cent to $89m.

The company’s IPO comes just days after rival Traeger, a maker of wood pellet grills, listed its shares publicly. Traeger’s stock, which it sold at the high-end of a range marketed to investors, has climbed more than 50 per cent since its IPO to value the business at $3.3bn.

A banner year for the industry had seemingly whet the appetite of investors. Sales of grills, smokers and grilling accessories in the US in the 12 months to June reached $5.9bn, a 29 per cent increase from the year before, according to NPD Group, a market research company.

The strong growth exhibited by the likes of Weber and other leisure companies nonetheless had left analysts questioning how long the outdoor boom can last. Shares of Leslie’s, a retailer of swimming pool supplies, surged more than 85 per cent from its IPO late last year to a closing high in January. But since then, the stock has trodden water.

“Nothing will beat the peak of what we saw in 2020,” said Joe Derochowski, an analyst at NPD Group. “However what it’s done is it has reset the bar for grilling to leverage for the rest of the decade. And so now the door is open, the question is how well do [grilling companies] respond to it.”

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India tech IPO boom to provide crucial test of investor appetite

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Indian business & finance updates

Food delivery app Zomato has kicked off a flurry of stock market debuts by Indian start-ups that hope crackdowns on Chinese technology groups could prompt global investors to turn their attention to India’s tech offerings.

The $1.25bn initial public offering of Zomato in Mumbai, which launched last week, is expected to be followed in the coming months by the $2.2bn listing of Paytm, a payments and financial services app that has come to symbolise the excitement surrounding India’s digitalisation. Paytm and Zomato are both backed by Chinese billionaire Jack Ma’s Ant Group, while the former counts Japan’s SoftBank as an investor.

The IPOs arrive as investors become increasingly bullish on India following Beijing’s targeting of China’s internet groups. Ride-hailing business Didi was hit with a regulatory probe days after it raised $4.4bn in a New York IPO, sending shares of big Chinese tech stocks plummeting.

Bankers said the Indian listings represent a coming of age for the nation’s tech start-ups, where cash-burning businesses have until now been funded solely by private investors. However, some analysts have raised concerns that India’s equity markets are overheating and warned of regulators potentially targeting the sector. Investor demand for Zomato’s IPO outstripped supply by 32 times as of Friday.

“There’s a clamour for it, people have limited avenues to invest in Indian tech right now,” said Ausang Shukla, managing director of corporate finance at brokerage Ambit.

“Founders of fierce competitors of Zomato and Paytm, even they want the IPOs to be successful,” he added. “If they bottom out then the entire sector gets a bad name.”

Zomato and rival Swiggy, the two dominant food delivery players, have come to embody the breakneck growth of Indian tech start-ups. Both have used heavy discounts to expand into hundreds of cities, and orders were turbocharged during the Covid-19 pandemic, as lockdowns confined Indians to their homes. Nonetheless, Zomato reported a net loss of $100m in the year to March.

Zomato and Paytm could be joined in the public markets by Flipkart, an ecommerce group that is backed by US retailer Walmart and competes with Amazon in India, after it raised $3.6bn this month, giving it a $38bn valuation. Insurance aggregator Policybazaar, beauty retailer Nykaa and logistics company Delhivery have all indicated that they will list soon.

“India’s tech IPO boom has been long-awaited — there are some world-class businesses in the pipeline,” said Udhay Furtado, co-head of Asian equity capital markets at Citigroup. “There is clearly a global appetite . . . we are seeing investors from all corners of the globe including several who have not been active in the local Indian market before.”

Column chart of IPO proceeds in first half of each year ($bn) showing India listings are set for their biggest year since 2008

Zomato’s IPO is expected to give it a valuation of $8bn, while Paytm’s mooted $25bn market capitalisation would place it among India’s top 25 biggest companies.

Losses at both companies have not deterred investors, said Neha Singh, founder of data provider Tracxn in Bangalore. “In India, the expectation was that you become profitable and then you do the listing. That’s changed,” said Singh. “Markets are at an all-time high, so people want to take advantage.”

The listings coincide with a broader rush by Indian companies to tap public markets even as the economy suffers after a brutal second wave of coronavirus. The 37 businesses that listed in India in the first half of 2021 raised $3.9bn, according to Refinitiv data, the most since the global financial crisis. The benchmark Nifty 50 index has risen 13 per cent this year to a record.

For Zomato, investors hope the company will prove to be India’s answer to Meituan, China’s largest food delivery platform that turned profitable in 2019. Paytm has billed itself as a superapp with the potential to become India’s Alipay, Ant Group’s online supermarket of financial offerings.

Like its peers, Zomato has sucked up market share in India’s vast informal economy as lockdowns pushed more business online. But analysts question whether the boom will last.

Jefferies said it was a “critical investor concern” whether food delivery in India could be sustainably profitable in the long run, given that order values remain well below those in China or the US. “While there are a lot of questions on the minds of investors . . . the FOMO factor should keep the excitement level high,” the investment bank wrote.

Like in China, regulatory uncertainty is a risk in India as the government introduces legislation designed to give it more control over the data of its 1.4bn people.

“India’s regulators have had somewhat fickle views of the role of tech in the financial industry especially when dealing with foreign players,” said Zennon Kapron, director at Kapronasia, a regional fintech consultancy.

For Zomato and other start-ups about to hit the market, they will be hoping investors give them the benefit of the doubt.

“Zomato is the first one off the block, so it has to do well,” said Samir Arora, founder of Helios Capital, an investment group. “Zomato is a unique thing and Indians like unique things in the market,” he added. “It’s lossmaking, but it’s not obscene.”



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