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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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Ari Emanuel’s Endeavor shoots for $10bn valuation in IPO

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Endeavor, the entertainment group founded by Hollywood power broker Ari Emanuel, is aiming for a valuation of more than $10bn in an upcoming initial public offering, well above the $8bn valuation it sought in an abortive attempt at a flotation in 2019.

Its emboldened aspirations come in defiance of a coronavirus pandemic that has wiped nearly one-quarter off the media group’s annual revenues and saddled it with large one-off costs as it fired workers and wrote down the value of impaired assets.

Endeavor is hoping to raise as much as $1.8bn in the IPO and a simultaneous private placement of shares. It said on Tuesday it would raise $1.3bn from private investors including Abu Dhabi’s Mubadala and Robert Kraft, the owner of the New England Patriots, with the remaining $500m coming from stock market investors.

Among the other backers of the private transaction are wealthy individuals such as the computer entrepreneur Michael Dell, hedge funds including Third Point and Elliott Management, and the venture capital firm Silver Lake, which has been among Endeavor’s biggest backers since 2012.

Emanuel founded Endeavor in 1995 as a talent agency, and has since acquired companies focusing on sports, concerts and live events including the Miss Universe beauty pageant.

Endeavor plans to take full ownership of Ultimate Fighting Championship alongside the IPO. It will buy the 49.9 per cent of the mixed martial arts franchise that it does not already own, using cash and Endeavor shares.

KKR, the private equity firm that bought a large chunk of UFC in 2016, will then sell Endeavor shares worth $437m to the same group of investors participating in the private placement.

Endeavor previously announced plans to go public in 2019, when it intended to raise as much as $712m, before abandoning the plans on limited investor demand.

The IPO has been structured using an umbrella partnership corporation, or “up-C”, to offer tax advantages to executives and early backers like Silver Lake.

Investors in the IPO will purchase a stake in the public holding company, which in turn will own part of an underlying limited liability company. Executives and early backers will continue to hold some of their economic interests directly in that limited liability company.

The structure could enable those insiders to payouts of as much as $2.3bn over 15 years, according to the prospectus filed with the Securities and Exchange Commission.



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Oatly’s US IPO prospectus highlights risks to its Chinese backer

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Oatly, the Blackstone-backed vegan milk company which on Monday filed to float on Nasdaq, said it would consider adding a listing in Hong Kong within the next two years, citing its relationship with a Chinese state-owned conglomerate.

China Resources owns more than 60 per cent of the Swedish group through a joint venture with the Belgian family investment group Verlinvest and has helped the company to dramatically expand its presence in China in recent years.

In a prospectus for its Nasdaq share offering, Oatly said it could seek a second listing in Hong Kong if its status as a US public company had a “material adverse effect” on its leading shareholders.

Explaining why it had agreed the provision, Oatly cited the possibility that the US government could make it hard for the group to share information with a state-owned company and might prevent China Resources from placing its representatives on the Oatly board, or even force it to divest.

The company also said it could pursue a Hong Kong listing if it generated more than 25 per cent of its revenue from sales in the Asia-Pacific region for two consecutive fiscal quarters.

The prospectus detailed how Oatly has been able to rapidly expand its presence outside Europe, with Asia and the Americas contributing a combined $150m, or 36 per cent of total revenues, last year compared to $50m, or 24 per cent, in 2019.

Oatly’s products are now sold at more than 9,500 shops in China, three years after launching in the country. In the US, Oatly products can be found at 7,500 retailers and in more than 10,000 coffee shops.

The relationship with China Resources attracted controversy when the group invested in Oatly with Verlinvest in 2016, prompting Swedish media to highlight China’s environmental and human rights record.

“It’s difficult to have a large float without Chinese investors being involved these days,” said one small Oatly shareholder from a venture capital firm.

Malmo-based Oatly has grown on the back of the popularity of plant-based milk alternatives across the globe and is pushing for a $10bn valuation from the Nasdaq float, according to people familiar with its plans.

An investment round last year led by Blackstone valued the oat milk maker at $2bn. Oatly’s other investors include television host Oprah Winfrey and rapper Jay-Z’s Roc Nation.

The prospectus confirmed earlier revenue estimates of more than $400m in 2020 — $421m to be precise, up from $204m in 2019 — though losses widened from $35.6m to $60.4m.

International expansion has focused on the specialty coffee market, with its “barista” milk which froths like cow’s milk. Oatly has also expanded into making and selling plant-based ice cream and yoghurt, although its oat milk made up 90 per cent of revenue last year.

The company said it was planning to raise $100m in its initial public offering, a place holder number that is likely to change. Morgan Stanley, JPMorgan and Credit Suisse are leading the offering.



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Grab co-founder set to dramatically increase voting rights with Nasdaq listing

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Malaysian internet entrepreneur Anthony Tan is set to dramatically increase his control over his company Grab when the south-east Asian tech group joins Nasdaq later this year.

In a move that would be the envy of his Silicon Valley peers, the Grab chief executive and co-founder will have 60.4 per cent of the voting power in the company while owning a stake of just 2.2 per cent.

This is a feat comparable to that of Facebook’s Mark Zuckerberg and unprecedented for a deal involving a special purpose acquisition company.

The holdings were contained in papers filed last week after the Singapore-based company unveiled a record deal to combine with a New York-listed Spac launched by Altimeter, a Silicon Valley group, valuing the business at almost $40bn.

The filing also revealed that the company, whose superapp offers everything from ride-hailing to deliveries and financial services, has reported potential violations of anti-corruption laws to the US Department of Justice.

Proponents say Tan needs the control to make quick and difficult decisions in navigating Grab’s eight markets. The deal is a crucial test of international investor appetite for a tech company with operations sprawled across the vastly diverse and emerging region of south-east Asia.

Bar chart of % of voting power showing  Anthony Tan will have majority voting control at Grab

But his grip on the SoftBank-backed company’s direction marks the first time a Spac deal has entrenched a founder’s voting rights to this degree, say experts.

Such an overriding majority voting right for a chief executive is “unprecedented” for a company seeking a Spac route, said Robson Lee, a partner at law firm Gibson Dunn. “While it is not unusual for high tech companies seeking a listing to entrench management shares with additional voting rights, a 60 per cent absolute majority will be the first in the market,” Lee said.

Others put it more bluntly.

“By bypassing a traditional IPO, Grab has attracted less scrutiny over Anthony’s control,” said one investment banker with direct knowledge of the deal.

While common in the tech space, such arrangements are not always popular, as evidenced by the backlash against Adam Neumann, WeWork’s messianic co-founder, and shareholder protests faced by Zuckerberg, who holds about 60 per cent of the voting power at Facebook.

Details of Tan’s control did not surprise Grab’s rival, Indonesia-based super app Gojek. Merger talks between the two companies were abandoned late last year before Grab began considering a Spac merger, and people close to the talks said Tan had demanded control indefinitely as a “CEO for life”. Grab has denied the reports.

One long-term Grab investor said that Tan, who comes from one of Malaysia’s wealthiest families, “needs a high level of power” to negotiate a seat at the table at the region’s messily interlinked world of family-run conglomerates, politics and regulation.

“The issue is south-east Asia in itself is not a homogeneous market . . . It’s a collection of different markets with their own sets of regulatory considerations,” said Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore.

In its filing, Grab outlined several risks including an investigation it launched into potential violations of anti-corruption laws related to its operations in one country. The company reported the potential violations to the DoJ but declined to comment on them when contacted by the Financial Times.

The onus is on Grab and Tan to justify the dichotomy between ownership and voting shares and prove it is in the interest of the shareholders, said Nirgunan Tiruchelvam, head of consumer sector equity research at Tellimer Group.

“If he can argue that such a disproportionate share of voting would be beneficial to shareholders and add value for further direction of the company, then it’s possible shareholders would be comfortable with it.”

But even key shareholders have had their voting power diluted via the dual-class share structure — similar to Facebook. SoftBank, Grab’s biggest shareholder, has an 18.6 per cent stake that will translate to just 7.6 per cent voting power. Uber’s 14.3 per cent stake has a 5.8 per cent voting power and Didi Chuxing’s 7.5 per cent stake, just 3.1 per cent.

“For now we are just happy with the liquidity, but longer-term we want to see genuine progress towards profitability,” said one investor.

That is still years away. Grab has lost money every year since its inception in 2012 as it has grappled with other well-financed competitors. Accumulated losses hit $10bn at the end of 2020. Last year it reported a net loss of $2.7bn against net revenues of $1.6bn and it does not expect to break even until 2023.

Column chart of Net losses ($bn) showing Grab as a whole is still not profitable

On top of that, Grab has not said if it will appoint any independent board directors, nor does its filing say what checks and balances are placed on Tan. Information on succession or who inherits Tan’s stock has not been released.

“Further details will be in the F-4 registration statement that will be filed with the SEC [the US Securities and Exchange Commission], and to comply with this regulatory process, we will not be able to share more until the F-4 is finalised,” Grab said in a statement.

Jeffrey Seah, a partner at Singapore-based venture capital firm Quest Ventures, said: “While he has supervoting rights, he has kept his management team intact. That is a [type of] check and balance.”

But even the supervoting shares held by Grab’s co-founder Tan Hooi Ling and president Ming Maa will be beneficially owned by Tan under a deed that will be entered at the time of the merger.

So far, Grab’s big-name investors seem happy to back Tan. Funds investing in the deal include BlackRock, T Rowe Price, Fidelity, Janus Henderson, Abu Dhabi’s Mubadala, Singapore’s Temasek, Malaysian fund Permodalan Nasional Berhad as well as a number of wealthy Indonesian family offices.

The test will come when Grab joins the Nasdaq, said Loh. The deal has been approved by both Grab and Altimeter Growth boards, and it could close by July.

“The moment of truth will be when we discover the listing price and when it’s actually traded . . . If there are concerns, all investors will probably give it a discount,” he added.

mercedes.ruehl@ft.com and stefania.palma@ft.com



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