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McLaren seeks up to £500m in possible blank-cheque merger

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McLaren, the British supercar manufacturer, is in talks to raise up to £500m in fresh equity that could pave the way to a listing though a blank-cheque company.

A deal with a special purpose acquisition company, or Spac, which is specifically used to take a private group public through a reverse merger, is one of the options the carmaker is considering to raise cash.

The pandemic hit group, which has a long and illustrious racing heritage, wants to shore up and refinance its business over the coming 12 months.

This includes the possible sale of a minority stake in its racing arm, and looking at options for the future of its applied division, which sells racing and car technology to third parties.

After laying off a quarter of its staff during the pandemic and raising emergency funding in the summer, the company is seeking ways to cut its debt pile before refinancing bonds that mature in 2022, Mike Flewitt, McLaren Automotive chief executive, told the Financial Times.

“We need to restructure the total business,” he said. “We went into this year having two very successful years in automotive, but the total business did not have the liquidity to survive this kind of crisis.”

McLaren’s sales in the first nine months of the year fell more than 60 per cent to £389.2m, with its pre-tax loss swelling to £312.9m from £68.2m a year earlier. The automotive unit, which Mr Flewitt leads, accounts for more than 80 per cent of the business.

The company is in talks with several parties about raising £300m to £500m in equity over the next few months.

The business is “not ruling anyone out” and is considering investments from “individuals, family groups, sovereign wealth funds and private equity”, as well as at least one US-based Spac, he said.

A deal with a Spac, which have become one of the most popular ways of fundraising in the past year, would put McLaren alongside Aston Martin and Ferrari as a publicly listed supercar group.

Mr Flewitt said floating through a merger with a Spac was not out of the question, but that McLaren’s investors will decide on the most appropriate new shareholder.

“We will look for investors who have a common vision to our shareholder base, both in terms of the structure, direction of the company, and medium-term plans,” he said.

In parallel with the equity talks, McLaren is also pressing on with a sale and leaseback of its headquarters in Woking, which would reduce the amount of money it needs to raise through an equity injection.


£389.2m


McLaren’s sales in the first nine months of the year, which were down more than 60 per cent

The cash raised will be used to pay down debt, which stands at £661m at the end of the third quarter, after the company raised £150m in an emergency loan in the summer.

Having paid down some of the debt, the company will then seek to refinance the remaining bonds during next year, he said.

Selling a minority stake in the racing team will bring in extra funding to the unit, though McLaren will seek to retain a majority stake and control of the division if a deal goes ahead.

It is also looking at options for its applied division, which could result in the slimming down of the unit.

The company, which uniquely among competitors Ferrari, Lamborghini and Aston Martin does not have a partnership with a larger carmaker, has to foot the bill for most of its technology development itself.

The group just spent close to £400m on a hybrid system that will underpin its future cars as it plots a shift away from pure internal combustion engine technology, beginning with the Artura supercar to be revealed next year.



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Honest Company’s market debut marks a comeback

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When the Honest Company lists on the Nasdaq exchange on Wednesday, it will be the culmination of a long recovery for the baby and beauty products group co-founded and fronted by the actress Jessica Alba.

The company priced its initial public offering on Tuesday at a valuation of $1.4bn, having worked to shake off much of the reputational and financial damage from a series of product lawsuits and recalls.

Honest, founded in 2011, had been valued as high as $1.7bn in 2015 before controversy over some of its claims to be using only natural ingredients in its products. In 2017, the company also recalled baby wipes because it found mould in some packages, and baby powder over concerns it may cause skin or eye infections.

Sales slid and Honest lost its status as a “unicorn”, a private company worth more than $1bn.

“Our rapid growth,” Alba wrote in a confessional passage in the IPO prospectus, “was compromising key business functions.”

Honest has never been profitable, but its revenue rose from $236m in 2019 to $300m in 2020 as the pandemic fuelled a run on cleaning products and other household staples. That took sales back to the level the company last enjoyed in 2016.

Losses narrowed last year to $14m from $31m in 2019.

Honest has previously said it expected to price its offering between $14 and $17 a share. At $16 each, it raised $413m, a majority of which will go to existing investors who are selling some of their stake.

Alba had been inspired to launch the brand after the birth of her first child left her scrambling to find household products she deemed safe to use around her daughter. She pledged to hold the company to an “honest standard of safety and transparency”.

Honest markets its products as natural, boasting that “we ban over 2,500 questionable ingredients”. It is one of many consumer goods makers seeking to tap into buyers’ appetite for household products seen as non-synthetic and sustainable.

The company still flags “health and safety incidents or advertising inaccuracies” as a continued risk factor in its prospectus. In January the brand issued a voluntary recall for one of its bubble baths, out of concerns that it could cause infections.

Ahead of the IPO, the company said two weeks ago that Alba would be stepping down as chair of the board when the company lists, handing the role to James White, former chief executive of Jamba Juice. She will remain the company’s chief creative officer, on a salary of $600,000 a year and, according to the prospectus, key to the company’s future success.

“Jessica Alba is a globally recognised Latina business leader, entrepreneur, advocate, actress and New York Times bestselling author,” it said. “Our brand may . . . depend on the positive image and public popularity of Ms Alba to maintain and increase brand recognition.”

Alba’s 6.1 per cent stake after the IPO was worth about $90m at Tuesday’s offer price.

The 3.8 per cent stake held by chief executive Nick Vlahos was valued at $57m. Vlahos has been steering Honest’s recovery since 2017, when he replaced co-founder and serial entrepreneur Brian Lee.

Honest secured a $200m investment from the consumer-focused private equity group L Catterton in 2018. The group is selling about half of its current 37.1 per cent stake in the offering, enough to recoup that investment, leaving a 17.4 per cent holding worth another $252m.

Morgan Stanley, JPMorgan and Jefferies are leading the offering.



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Oxford Nanopore/IPO: sequencer has Woodford in its DNA

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The stampede of pandemic winners to the stock market inspires wariness. Oxford Nanopore, which plans to go public this year, is one such beneficiary. The spinout from Oxford university is responsible for a fifth of the international sequencing that tracked coronavirus mutations.

That has drawn attention to a company with a lot of potential in a wide range of applications. An initial public offering could value it at significantly more than the £2.5bn price tag from a private funding round on Tuesday.

Started in 2005, Oxford Nanopore has benefited from the support of long-term shareholders. However, the backing of Neil Woodford is a complicating factor. The funds business of the prominent UK asset manager folded in 2019 following dire performance.

A successful float would benefit Schroder UK Public Private, the “patient capital” investment trust Woodford formerly ran. But there will be anger from former investors in his defunct income fund. Its 6 per cent stake in Oxford Nanopore was bought by Nasdaq-listed Acacia Research, which put a valuation of just $111m on it in its latest accounts. Woodford, who announced a controversial plan to restart his career in February, is working with Acacia as an adviser.

Oxford Nanopore’s decision to join the London market rather than Nasdaq will also hamper the valuation. But assume, as Jefferies does, that sales more than doubled to £115m in 2020. Even if Oxford Nanopore was valued at half the multiple of peers like US Pacific Biosciences, it would be worth £3.6bn.

That is less than a tenth of the size of San Diego’s Illumina, the global leader. Oxford Nanopore argues its sequencing technology — which monitors changes to an electrical current as nucleic acids are passed through a tiny hole — beats traditional camera-based approaches. Sequencing can be done quickly and cheaply by miniaturised devices. Accuracy has been a weak point, but is improving.

Investors should focus on the science, setting aside market froth and the Woodford connection. At the right price, Oxford Nanopore’s plan to facilitate the analysis of “anything, by anyone, anywhere” would be worth investing in.

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Trustly postpones $9bn flotation after regulator flags concerns

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Trustly has postponed its proposed $9bn stock market flotation after Swedish regulators raised concerns about the payment company’s lack of due diligence on its end customers.

The planned initial public offering was due to be one of the biggest by a fintech company in Europe this year and was set to take place this quarter but had now been postponed indefinitely, Trustly said on Monday.

Sweden’s Financial Supervisory Authority told Trustly in April that while it had until now conducted due diligence only on the merchants for which it provided payment services, it should now also check on some end-customers.

Johan Tjarnberg, Trustly’s chair, said the company needed to resolve all the questions from the regulator before pursuing an IPO. A listing remained “our ambition” but “there is today no timeplan set” for it, he added.

Trustly has pitched itself as an alternative to buy-now, pay-later companies such as Klarna, valued at $31bn, that rely on the card networks of Visa and Mastercard for payments. Trustly offers payments directly from the bank accounts of customers to those of merchants. It claims its fees are lower than fintech companies that use card networks because it cuts out the middlemen.

As well as ecommerce, Trustly is also known in the payments industry for having a large presence in the higher-risk betting sector. Rivals have questioned the company’s activities outside of online retail. “They are in riskier areas that many payment groups have just refused to go into,” said one European fintech executive.

Oscar Berglund, Trustly’s chief executive, said betting was one of five different merchants it dealt with. “As a matter of policy, we only serve licensed operators, and we also have clear exclusion criteria as regards other verticals,” he added.

Trustly flagged in its annual report in March that the Swedish regulator was conducting a supervisory review into its compliance with money laundering and terrorism financing prevention rules.

Asked by the Financial Times about the review, Berglund downplayed its significance, saying: “It’s not the first time they review us. It [won’t be] the last time.” He conceded that betting companies were “a higher-risk kind of merchant” and added “we need to do closer checks on them, which we do”.

Swedish regulators clearly have a different view, arguing that Trustly needs to run checks on the people who use its payments services in such cases, not just the betting companies themselves.

Tjarnberg said Trustly would “engage in a constructive dialogue” with regulators. Berglund said at the end of April that the regulator could “adjust its observations” based on Trustly’s response.

Trustly also disclosed first-quarter results on Monday, in which its revenues increased 46 per cent compared with the same period last year to SKr632m ($75m). Underlying earnings before interest, tax, depreciation and amortisation rose 31 per cent to SKr275m.

Growth was particularly strong in the US, where revenues increased 609 per cent compared with a year earlier and now account for a quarter of the group’s total revenue.



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