Lockdown Britain has a puppy shortage and a surfeit of stock market dogs. Veterinary services company IVC Evidensia, a beneficiary of the former, has all the makings of the latter.
Private equity group EQT and Nestlé, IVC’s current owners, are planning a London listing for early next year. They see a business worth up to £12bn at the enterprise value level, at least according to the excitable bankers who have attached themselves to the plan. Investors might ask what exactly has changed since IVC’s funding round in February of last year, which set the headline enterprise value at just €3bn.
The answer appears obvious. Home working has given time-poor commuters the opportunity of pet ownership. Google Trends data picked up a doubling of UK searches for “vets near me” in the five months after the March lockdown as new owners looked to vaccinate and neuter their new companion.
Pets being for life, the trend is likely to withstand recession. Like-for-like sales at CVS, the UK-listed vets owner, hardly budged through the downturn of 2007 to 2011. Its shares have surged more than six-fold from March lows on expectations of a repeat performance.
CVS and its private equity-backed rivals take advantage of industry economics that favour buying over building. They buy up independent practices with long customer lists then use scale to squeeze down costs. When the time comes to sell, industry consolidators such as US behemoth Mars Petcare have been rapacious consumers.
The playbook has limits, however. Mandatory services such as 24 hour locums are a cap on cost-cutting potential so earnings can flatline soon after acquisition. Analysis from RBC Capital Markets found that between 2009 and 2017 CVS bought £26.1m of ebitda by taking over 255 practices, yet group ebitda rose by just £29.7m.
While not much is known yet about IVC’s finances, a Fitch report from August hints at a roll-up vehicle that is running out of road. The debt ratings agency expects sales to grow just 5 per cent by 2024 and records negative free cashflow for 2019 as net debt ballooned to 9 times ebitda, likely choking the bid pipeline. Perhaps lockdown has transformed these numbers but if that is the case, why would the sellers be selling?
London needs to shake its reputation for overhyped floats, particularly those that give private equity a timely exit. If an IVC arrives anywhere close to its mooted valuation, investors are being served another dog’s dinner.
Lumbering Royal Mail is starting to deliver
Royal Mail was created in 1516, a year after Albrecht Dürer sketched the first Indian rhinoceros to arrive in Europe, based on details given in a letter. The rhino that Dürer depicted, with its riveted armour plating, could not and did not survive a year. Half a millennia later there were doubts that Royal Mail, with its inflexible statutory obligations and its unionised workforce, could survive.
But on Thursday, the company showed the market it could slough off the past and embrace a future filled with cardboard boxes and jiffy bags. For the first time, parcel deliveries, up a third in the six months to September, exceeded letter volumes. First-half revenue growth of almost 5 per cent in the UK was the highest since the business floated in 2013. It shows the Royal Mail “can be cash generative and a sustainable, profitable business in the future”, said interim executive chairman Keith Williams. “The business has horns.”
Revenues at GLS, the overseas parcel delivery business which now brings in a third of the group total, rose a fifth. The Amsterdam-based division’s margins topped 9 per cent in the first half. Its van drivers took full advantage of clear roads and recipients staying home to take delivery.
Covid-19 and the shift to ecommerce have forced Royal Mail to pivot faster towards transporting packages. Mr Williams is anticipating the “biggest online Christmas” to date and is recruiting about 33,000 flexible workers. That’s the size of the Royal Navy.
But Royal Mail still needs to be fleeter of foot. Brexit and an economic downturn will dampen spirits post Christmas. The group has shambled too slowly towards automation, says Mr Williams. Most parcel sorting is manual and each percentage point increase in domestic parcel revenue costs about £8m, the group says. Restructuring is costing a packet and also needs the nod from its 140,000 posties. Progress there has been lumbering, too. And the group is unlikely to shuck off its constricting statutory obligations to deliver to the door any time soon.
None of which makes it easier to forecast with certainty. Analysts are pencilling in anything from a £300m profit before tax in the full year to March to a £100m loss. Nonetheless, Royal Mail is starting to look less like the impossible beast of Dürer’s imaginings and a little more like a company tooling up for the 21st century.
IVC Evidensia: firstname.lastname@example.org
Royal Mail: email@example.com
Volvo Cars: race to net zero marks revival of IPO plan
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.
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Commodities broker Marex looks to list on London Stock Exchange
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.
‘A real man of mystery’: how Ian Osborne built a $1.5bn venture capital firm
When tech financier Ian Osborne invests in a company, executives must agree to an unusual clause: not to talk about it without his permission.
Such tactics have helped Osborne and his firm Hedosophia largely fly under the radar despite his involvement in high-profile investments and takeover bids over the past decade.
With early support from funds linked to media baron Michael Bloomberg, Hong Kong tycoon Li Ka-shing and the Burda family of Germany, the 38-year-old Osborne has quietly created a $1.5bn venture capital business.
According to people familiar with the matter, companies from Spotify, TransferWise and Raisin in Europe to Alibaba, Ant Financial and Airwallex in Asia have all received investment from Osborne.
One tech investor compares the urbane but reticent British investor to the well-connected PR fixer Matthew Freud: “He knows everyone.” Another, who carried out due diligence before working with Osborne, said: “He is the sort of guy who will turn up behind you on a flight to Rio. He is a real man of mystery.”
As one of the architects of the boom for special purpose acquisition companies (Spacs) — which raise cash in listed funds that then hunt for a company to take public — Osborne has helped turbocharge tech valuations.
Even as the US market cools on the phenomenon and regulatory scrutiny grows, Osborne is hoping to popularise such blank cheque vehicles in Europe with plans to raise as much as €460m with a Spac listing in Amsterdam.
Described by contacts as “obsessively secretive”, Osborne fiercely protects his privacy and allows publicity to be drawn to high-profile partners such as Chamath Palihapitiya, a venture capitalist.
Palihapitiya, a brash former Facebook executive, with a large social media following and a love of making provocative comments on TV, describes Osborne as “a very good yin to my yang”.
The moonshot machine
It is for the relaunch of Spacs in 2017 that Osborne is becoming best known — teaming up with Palihapitiya’s Social Capital to back the listings of companies such as Virgin Galactic, Clover Health and Opendoor.
Along the way, Osborne has amassed shares worth as much as $300m, according to a person familiar with the matter, boosted by the juicy “promote” share awards given to sponsors of the listings.
To friends and investors, he is a canny dealmaker and consummate networker, connecting rich family offices to founders needing funds to expand.
Others worry he has been at the vanguard of a wave of speculative cash, bestowing stratospheric valuations on unproven companies.
Virgin Galactic — which he helped take public in 2019 — opened the floodgates for moonshot companies with little by way of revenues to list through Spacs. More than 300 Spacs have raised $97bn this year, according to Refinitiv.
With the action now shifting to Europe, it marks a homecoming for Osborne, who splits his time between houses in London and Hong Kong, where he is a resident.
From Bloomberg to Zuckerberg
Born and raised in Richmond, London, the son of a lawyer and a doctor, Osborne studied at St Paul’s school, King’s College and London School of Economics, graduating in 2005 and going to work as an adviser to Bloomberg, who became a connecting thread through Osborne’s career.
Kevin Sheekey, Bloomberg’s longstanding campaign manager and communications chief, said Osborne began working for the then New York mayor after co-hosting a dinner in London whose guests included actress Claudia Schiffer and media scion James Murdoch.
By 2007, thanks to Osborne’s connections, Bloomberg was addressing the Conservative party conference in Blackpool. “It sounds an easy thing to do but connecting people is a rare talent,” said Sheekey. “Dozens of people around the world that Mike and I have good relationships with were introduced by Ian. Global business leaders never meet without a go-between. There is no Yellow Pages for that.”
He describes a Zelig-like quality to Osborne: “His nature is not to promote himself.”
As international adviser to Bloomberg for the next four years, Osborne continued to unleash his networking skills, gaining access to people who would become his ticket to the world of tech finance.
“At first it was like, ‘what is this British 20-something doing in the midst of US politics?’ It didn’t make much sense,” said Daniel Ek, founder of Spotify, who met Osborne in this period.
Initially, Osborne offered “advice, connections with people”, according to Ek. “But his Rolodex was off the charts for someone so young. The connection between politics and business today seems like an obvious fit but at the time no one was making the link.”
Osborne began to advise, and later invest in, Palihapitiya’s Social Capital after meeting him with Mark Zuckerberg in 2008.
Palihapitiya described Osborne as “extremely, exceptionally discreet and unbelievably trustworthy. He’s unbelievably connected. He is our modern version of a homeless billionaire. Ian is constantly working, is constantly travelling, and he collects people.”
In 2009, he set up his own consultancy, Osborne and Partners, that took on clients including DST Global, the venture capital firm run by Yuri Milner, the Israeli-Russian billionaire.
By 2010, he was helping DST lead investments in Spotify and Alibaba — where he had forged relationships with founders Ek and Jack Ma, respectively.
Through his time working with DST and afterwards, Osborne continued to run a PR and business development consultancy, advising the businesses of US tech billionaires from Travis Kalanick and Evan Spiegel to Zuckerberg. He remained close to Bloomberg, helping on an attempt to buy the Financial Times from Pearson in 2013.
That year, he was firmly established on the tech scene as one of the organisers of the hottest party in Davos — a “taxidermy” themed bash thrown with Napster co-founder Sean Parker and Salesforce CEO Marc Benioff.
He had also started to work informally for then UK prime minister David Cameron and chancellor George Osborne, to whom he remains close, helping open doors in the US. During the 2010 election campaign, he helped prepare Cameron for TV debates. Around the same time, he organised a trip to the US for Boris Johnson, then mayor of London.
Osborne became the “ultimate co-host” — according to one person familiar with the period — gathering people from politics, tech, finance and the arts. It was at a dinner hosted by Osborne in 2014, attended by actor Ed Norton and Arianna Huffington, that an Uber executive landed in trouble for suggesting that the company could dig up dirt on a critical journalist.
Taking ‘IPO 2.0’ to Europe
Osborne set up Hedosophia in 2012 — named after Greek gods of pleasure and wisdom — aiming to specialise in earlier stage tech firms.
Early backers included family offices such as Germany’s Burda and funds related to Li, the Hong Kong tycoon, said a person close to the group, who added that it now has a more institutional investor base of university endowments, public pension funds and insurance companies from the US, Japan, Canada and Sweden.
It was at a dinner in Hong Kong in early 2017 with Palihapitiya that he pitched the idea for a new sort of Spac to give tech founders an easier public listing without the risk and regulatory baggage of a traditional IPO.
Despite being partners in the sponsor company, the pair did not split earnings equally, said people with knowledge of the situation, with Palihapitiya taking the majority of profits but also putting in greater capital. Palihapitiya also coined the new term for the Spac — “IPO 2.0” — which was draped over the New York Stock Exchange at the launch in 2017.
Since then, hundreds of Spacs have followed this strategy, launched by former bank executives, athletes and politicians keen to enjoy the almost risk-free upside of the Spac sponsor model. But even those operating around Osborne wonder whether the market has now gone too far. “The bubble is definitely bursting now,” said one.
The Osborne/Palihapitiya Spac franchise has been hit as the market has turned — with Clover’s shares falling more than 50 per cent from their highs and shares in Virgin Galactic — which has yet to make a commercial flight — down more than 70 per cent from the peak.
Osborne is determined to get his European Spac right, according to those close to the plans, cutting the financial rewards for the sponsor and bringing together a heavyweight board.
This month, he will also return to an early passion in the theatre, producing one of the first musicals to open after the end of pandemic restrictions in the West End — Everybody’s Talking About Jamie.
He will need to get used to being centre stage — in Europe at least, he has no Palihapitiya to hide behind, and the scrutiny over Spacs in the US has started to raise questions for investors and sponsors alike over whether the market has gone too far, too fast.
Additional reporting by Tim Bradshaw and Arash Massoudi
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