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Wall Street IPO bonanza stirs uneasy memories of 90s dotcom mania

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The frenzy surrounding Airbnb’s Wall Street debut began hours before the first trade. As bankers worked to establish an opening price, the number of options contracts changing hands in robotics maker ABB skyrocketed. The apparent flub came down to a single letter: ABB was missing an N in its ticker that would otherwise denote Airbnb.

The rush into ABB was quickly overrun by an avalanche into Airbnb, which more than doubled in value on Thursday in a return to the kind of mammoth pops that came to define the dotcom boom of the late 1990s. By the end of the day, Airbnb was worth $86bn — on par with Goldman Sachs, the bank that helped usher it to market.

The renewed fervour for a piece of highly valued technology IPOs has stirred unease for many investors who remember the dotcom bust with trepidation. Only three other companies raising at least $1bn in the US have climbed more on their first day than Airbnb — and the trio did so between March and June 2000, according to Dealogic. The group included Palm, maker of the PalmPilot mobile device.

“We’ve all been around markets for enough time to know this doesn’t end well,” said Jim Tierney, the chief investment officer of concentrated US growth at AllianceBernstein. “It’s a sign of frothiness, a sign of incredible demand, a sign of a retail investor that . . . just wants to get in.”

The scramble for shares of Airbnb, as well as the buying spree in DoorDash earlier in the week, starkly contrasted with the reception big privately held companies received for much of 2019 when high-profile debuts from the likes of Uber and Lyft were met with investor apathy. Others, including the pitched-then-aborted float of WeWork, faced intense scrutiny from money managers who questioned how bankers reconciled their multibillion-dollar valuations with lossmaking operations.

Bar chart of Change on first day of trading (%) showing Dazzling 2020 debuts beaten only by dotcom-era IPOs

The listings have accompanied a rally in technology shares this year after the Federal Reserve and US government unleashed unprecedented stimulus to stymie the economic fallout of the pandemic. It is one of the reasons that investors have been willing to snap up shares in the debuts of these tech businesses, even when their valuations have appeared increasingly untethered from norms, bankers and asset managers said.

Retail investors have supercharged the gains in the $42tn US stock market, piling into equities and moving markets in ways last seen before the Nasdaq crashed in 2000. And they have left a mark on IPOs, bidding shares of newly listed companies ever higher, said Michael Baumann, a syndicate trader at Fidelity. Their presence, which was mostly absent last year, is a factor that large money managers now contemplate with when placing orders for IPOs.

“You have institutional investors doing extreme diligence on these companies and putting together a valuation framework and then the debut comes and you have these euphoric after-market results,” he added. “We don’t think that is driven by the institutions.”

Companies have tapped the demand to raise a record $149bn through initial public offerings in the US this year, according to Refinitiv. That has included an unprecedented seven consecutive months of $10bn-plus flotations. Even when excluding a boom in blank-cheque companies, the IPO spree is running at its fastest pace since 2014 despite new listings slowing to a standstill in March when the pandemic sent markets into a tailspin.

Column chart of Proceeds raised ($bn) showing US IPO boom reaches new heights

Sharp gains for big technology shares this year provided a boon to privately held groups when they held their virtual IPO roadshows.

Investors came in droves when cloud-company Snowflake went public in September, betting that it would take advantage of businesses moving their operations online. Its stock more than doubled on its debut; even Warren Buffett’s Berkshire Hathaway, long known for its love for a good bargain, bought in. A similar narrative played for DoorDash, which benefited from the boom in food delivery.

Line chart of Total fund assets of the Renaissance IPO exchange traded fund ($m) showing Investors race into fund tracking newly-listed companies

Airbnb, which allows users to rent out their homes to travellers, marked a turning point for investors given its business, unlike many tech companies, was still battered by the pandemic. Money managers are now betting global vaccine rollouts will help companies hardest hit by the pandemic outlast the downturn, including those in the travel and hospitality industry.

The deluge of new issuance is expected to continue next year, according to bankers. Robinhood, the retail trading app that has helped foster a new generation of day traders, is at work on a flotation that could come as early as next year, people familiar with the matter said.

Jane Dunlevie, co-head of global Internet investment banking at Goldman Sachs, estimated that there were still hundreds of large upstart companies on the sidelines including more than 70 that were worth more than $5bn.

“The super cycle will continue,” she said. “The impact that tech companies have has probably never been greater. Covid in particular has accelerated some businesses but it has also battle tested some that have emerged stronger.”

There are signs investors are already following the gains, with fund flows building rapidly for a Renaissance Capital exchange traded fund that invests in IPOs.

“When the IPO market is wide open, after-market trading can get frothy,” said Matt McLennan, head of global value at First Eagle Investments. “It is an expression of investors’ confidence and there may be too much confidence at the moment.”



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Latest fundraising values Deliveroo at more than $7bn

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Deliveroo’s valuation shot up to more than $7bn in a new fundraising, in a sign confidence is growing among the food delivery app’s investors ahead of its long-awaited stock market debut.

The new private financing for one of London’s most prominent internet groups is the latest illustration of the frenzied investor appetite for high-growth companies, even as some analysts warn that tech valuations are becoming overstretched.

It suggests that Deliveroo’s backers believe its valuation can exceed $7bn in an initial public offering, which the company has for the first time publicly confirmed is in the works, after a blockbuster listing from US-based delivery app DoorDash last month.

Deliveroo said early on Sunday that it had raised $180m in new funding from existing investors, led by Durable Capital Partners and Fidelity Management, valuing the eight-year-old company at more than $7bn, without including the new funds raised. That is almost double its 2019 price tag, reported to be between $3-$4bn, when Deliveroo raised $575m from investors including Amazon.

Amazon’s funding did not close until August last year after an investigation by the UK’s competition regulator. Deliveroo was forced to take out a short-term £198m loan in 2019, when losses grew by a third to £317.7m.

Since then, pandemic lockdowns have supercharged the online food delivery business, more than doubling Deliveroo’s revenues in the UK and Ireland and pushing it into operating profitability during the second and third quarters of last year.

Will Shu, Deliveroo’s co-founder and chief executive, said the funding would “help us continue to innovate” in areas such as grocery delivery and its Editions network of “ghost kitchens”, which allow restaurants to expand delivery coverage without providing in-house dining. “We are really pleased our shareholders see the opportunity and growth potential ahead of us,” Mr Shu said.

Durable Capital, based in the affluent Maryland town of Chevy Chase, is also an investor in DoorDash and Affirm, two of the hottest tech IPOs of recent weeks, according to PitchBook, which tracks private investment.

“I have been impressed with the [Deliveroo] team’s ability to spot opportunities, innovate and adapt to changes in the market,” said Henry Ellenbogen, managing partner and chief investment officer at Durable Capital. “The online food delivery market is nascent and underpenetrated. We believe Deliveroo has the potential to become a much bigger company over time.”

Deliveroo has not yet indicated whether its listing, which could come as soon as April, will take place in London or New York, amid concerns that Brexit has dented London’s IPO appeal.

Last month, DoorDash saw its share price almost double on its first day of trading in New York. While DoorDash’s valuation rose above $60bn last week, its shares have been volatile, falling by almost 10 per cent on Friday without any obvious catalyst.

The difficulty in pricing new tech listings has caused some companies, including Roblox, to reconsider their IPO plans. However, European internet groups including Auto1, InPost and Moonpig have all indicated their intention to float in recent weeks.

Deliveroo’s new fundraising comes as it faces renewed competition in its London backyard from Just Eat Takeaway.com, Europe’s largest online food delivery group. Jitse Groen, chief executive of the food delivery group, said last week he would “make life very, very, very complicated for the competitors” in London by undercutting them on delivery prices and investing heavily in a new courier network.



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Bumble IPO filing details $125m cash payment and loan to founder

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Bumble founder Whitney Wolfe Herd received a $125m payout following a complex reorganisation of the dating app’s parent company, according to a regulatory filing ahead of its initial public offering.

Details of Ms Wolfe Herd’s financial arrangements with the company, including a $119m loan to an entity she controlled, are contained in an IPO prospectus published on Friday.

The prospectus also showed that Bumble Holdings, which owns Bumble and the Europe-centric dating app Badoo, swung to a loss and grew at a slower pace following the reorganisation led by the private equity group Blackstone in 2019.

Bumble has touted a focus on the experience of women on its dating apps, tapping into the growing market for online matchmaking services. The company reported 42.1m monthly active users across Badoo and its namesake app at the end of September, of which about 2.4m were paying users.

But the company’s growth has slowed since Blackstone agreed to purchase a majority stake in 2019 and installed Ms Wolfe Herd as chief executive, following allegations of a toxic work environment under former head Andrey Andreev.

Mr Andreev exited the company, previously known as MagicLab, and sold his stake as part of the deal, Blackstone said at the time. The investment valued Bumble’s parent company at about $3bn.

Ms Wolfe Herd received a cash payout of $125m as a result of the Blackstone-led deal, according to the filings. Bumble also loaned $119m to an entity controlled by Ms Wolfe Herd. She settled the remainder of the loan this month.

Corporate governance experts usually warn against such transactions, which can raise questions about conflicts of interest. WeWork drew a backlash for similar related party transactions during its attempted public offering in 2019.

Blackstone, the venture capital group Accel, and Ms Wolfe Herd are expected to maintain voting control over Bumble after the IPO.

In a move that is common for private equity-owned companies, Bumble will also be structured as an umbrella partnership corporation that gives tax benefits to insiders. New shareholders will purchase stock in a holding company, Bumble Inc, with a controlling interest in Bumble Holdings.

The IPO filing comes on the back of a strong market for new US listings, after shares in other consumer tech companies such as Airbnb and DoorDash surged from their IPO prices.

The listing will heighten the rivalry between Bumble and the dominant player in dating apps, Match Group, which owns Tinder, OKCupid and its namesake Match.com. The two companies were recently embroiled in a legal battle over allegations of patent infringement and the stealing of trade secrets, before settling all litigation last year.

Bumble also faces increasing competition in the matchmaking industry as social media group Facebook rolls out its own dating service to its 2.7bn users.

Bumble reported net losses of $117m in the first nine months of last year, a reversal from positive earnings of $69m during the same period in 2019, but a figure that the company said was affected by transaction costs.

Growth slowed last year. In the first nine months of 2020, Bumble reported revenues of $417m, an increase of 14.9 per cent from the same period in 2019, but slower than the 35.8 per cent revenue growth it reported from 2018 to 2019.

Bumble reported 2020 financials in two sections to reflect a change in corporate structure following the completion of the Blackstone-led reorganisation.

The company said it would use IPO proceeds largely to pay down debt and repurchase equity interests from private shareholders. Goldman Sachs and Citigroup are serving as lead underwriters on the offering.



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Amsterdam vies for IPO spotlight as Brexit dents London’s allure

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The decision by Polish ecommerce group InPost to pick Amsterdam for its stock listing offers the latest sign that London risks losing its grip as a trading hub after Brexit.

UK chancellor Rishi Sunak has referred to the hard break from the EU in financial services that kicked in on January 1 as “Big Bang 2.0″, a trigger for the City of London to flourish.

But bankers say Amsterdam is already showing potential to eat in to London’s pre-eminence as a European capital markets centre. Trading in EU shares fled London for EU centres including the Dutch city on the first day outside the single market at the start of 2021. Wednesday’s announcement by the Advent-backed parcel locker business suggests that initial public offerings may also gravitate towards where trading in European stocks is more lively.

“Looking at the options and the stock markets, Amsterdam looks very attractive because it seems that now that Euronext Amsterdam is becoming a kind of preferred tech companies listing stock exchange,” said Rafał Brzoska, InPost chief executive.

“Where in the past London was the default, we could see Amsterdam emerging as a new neutral listing place for IPOs, certainly for central and eastern European countries,” added Andreas Bernstorff, head of European equity capital markets at BNP Paribas, which advised on the InPost deal. “That is something that’s been accelerated by Brexit but also regulatory advantages in Amsterdam compared to London. We see that theme continuing.”

Euronext Amsterdam — part of a group of exchanges across the continent — handled just two IPOs last year, far behind London’s tally of 36, including dual listings, Dealogic data show. But one of the Dutch deals, for coffee conglomerate JDE Peet’s, was the biggest European listing last year and at €2.3bn, the largest since 2018. The lockdown-era deal in May was the first €1bn-plus listing executed virtually, with the roadshow taking just three days, down from a typical 14. Around 90 per cent of investment in the deal came from outside the Netherlands.

That flexibility and international reach for a large deal has provided evidence that the Dutch financial centre can absorb transactions that might otherwise have headed for London.

René van Vlerken, head of listings at Euronext Amsterdam, said his focus is on attracting listings and liquidity to the whole Euronext network, which spans countries including France, Portugal and Belgium, rather than only to the Netherlands.

“I’m not so much concerned about where the centre of the [European] capital markets union will be. I don’t care. I’m mostly concerned that the whole of Euronext can facilitate that,” he said.

London’s longstanding dominance of European finance is far from over even as it is being challenged, analysts have said.

“LSE remains the most international exchange for equity and bond issuers, traders and investors, and continues to be the financial centre of choice for issuance and trading within the pan-European timezone,” a spokesperson for the London Stock Exchange parent said. It is also urging the government to revamp listings rules to make the city a more attractive venue for fast-growing companies.

But for companies looking outside the UK, bankers think Amsterdam could have an edge over other European centres. “Choosing Paris or Frankfurt is more of a statement,” said one banker familiar with the InPost deal. Marginal differences in listing and governance rules in Europe tip in Amsterdam’s favour, he added.

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Mr van Vlerken is pushing the case for Amsterdam “very loudly”, he said, noting that companies had started to look beyond London before Brexit was completed. “We talk to issuers from Israel and from Africa that in the past, if they were going to do a listing in Europe, they would automatically go to London. There was a tradition and a history there. But that is already shifting,” he said.

“More and more companies from outside Europe looking at a listing are seriously considering Euronext as an alternative to London.”

London’s financial sector is effectively operating under a no-deal Brexit after the UK and EU failed to reach a deal on so-called equivalence, or mutual recognition on standards and regulation, before the UK dropped out of the single market and customs union at the end of 2020. That outcome had been anticipated by financial institutions on both sides, so it has not generated a large amount of disruption. It has, however, sucked EU share trading away from London overnight, in a reminder of how rapidly established trading norms can change.

For shares in dual-listed Just Eat, for instance, around 66 per cent of regulated trading headed to Amsterdam last year. That figure has already climbed above 80 per cent. That shift in liquidity helps to draw in new listings, said Mr van Vlerken.

Also on Wednesday, Just Eat said it had halted plans to delist from the Netherlands and focus on the UK. The company is reviewing all its listings as US rules demand the company is also traded on an American exchange following its $7.3bn purchase of Grubhub last year. Overshadowing its decision is a review by index compiler FTSE Russell, which may mean Just Eat is removed from the UK’s FTSE 100.

Mr van Vlerken believes any boost to the Netherlands owing to a lack of equivalence will prove fleeting. “Advisers and issuers are asking me about the lack of equivalence but I prefer to rely on our own strengths. The mutual benefits are too great for London to cut itself loose for the long term. In the end there will be some kind of resolution.”

The UK, however, has already shown it is willing to carve out its own path in financial services, splitting away from EU practices and rules. It is planning to bring trading in Swiss stocks back to London, in a break with an EU ban that prevailed before January’s full break with the bloc.

Additional reporting by Tim Bradshaw



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