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Klarna takes the long road to IPO

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When a start-up IPOs, it is often the culmination of a frantic period of growth.

But, assuming that Klarna pulls the trigger on a stock market listing in the next one or two years, it will be more than 15 years after the Swedish fintech and bank launched.

The “buy now, pay later” company was started by a trio of business school friends in Stockholm in 2005 and sought to bring invoicing — still common among consumers in the Nordics — into the world of digital shopping.

Klarna has since expanded out of the Nordics to Germany, the UK and Australia as well as the US, the most crucial part of its pre-IPO preparations.

Slowly the pieces are falling into place. In the past three months alone, Klarna has raised $650m in fresh capital at a valuation of $11bn; launched a partnership with US department store Macy’s; and, most recently, revamped its board including the addition of Silicon Valley veteran Sir Michael Moritz as chairman.

Sebastian Siemiatkowski, Klarna’s chief executive and one of its co-founders, is still coy about any potential timing. He has said that an IPO is likely in the next couple of years, but that the latest funding round could buy the company more time to stay private.

In any case, Mr Siemiatkowski is clear that growth in the US is the priority. So ferocious has been the pace of its expansion that the fintech — which had been profitable ever since it started — made its first ever annual loss last year.

He also hinted that its move into retail banking in Europe — it was the continent’s first large fintech to get a banking licence in 2017 — could be replicated in the US. He has previously said he wants to become the “Ryanair” of banking, disrupting incumbents worldwide.

There are undoubtedly challenges ahead of an IPO. Klarna says it makes most of its money by charging merchants fees. But it still makes money in some countries by charging customers for late payments, which critics argue fuels irresponsible spending, particularly among young people. The payment deferral programme has become so ubiquitous that “to klarna” has become a verb for some UK shoppers.

Klarna last week said it wanted to be regulated in the UK by the Financial Conduct Authority, and would start to report missed payments to credit reference agencies.

Credit losses in the first nine months of this year jumped by about a third compared with the same period in 2019, a similar rise to that in revenues.

Mr Siemiatkowski has shown previously that he can be far more patient than the typical start-up founder, working hard to get his product right. Potential investors in a Klarna IPO can expect the same, long build-up to any listing.

Quick Fire Q&A

Company name: Kneip

When founded: 1993

Where based: Luxembourg

CEO: Enrique Sacau

What do you sell, and who do you sell it to: We provide fund data management solutions, regulatory reporting and consultancy services to the asset management community.

How did you get started: Founder Bob Kneip launched the company in 1993 as an agency specialising in the production of annual reports for businesses.

Amount of money raised so far: N/A

Valuation at latest fundraising: N/A

Major shareholders: Founder Bob Kneip and management.

There are lots of fintechs out there — what makes you so special: We offer a unique blend of technology, regulatory expertise and a service trusted by asset managers for more than 27 years.

Further fintech fascination

Wirecard fallout: The Financial Times reports that Germany is to probe the head of the audit watchdog after he admitted to buying and selling shares in Wirecard while his own institution was investigating the company’s auditor. Also, documents seen by the FT show that Deutsche Bank and Commerzbank provided funding for Wirecard’s acquisition of a pair of Indian companies referred to in the fraud allegations against the fintech group.

Follow the money: Sweden’s Tink, which runs open banking platforms, has raised €85m in a funding round that gave it a valuation of €680m, says TechCrunch. The company links up 3,400 banks covering 250m people. The latest funding round was backed by Eurazeo Growth, Dawn Capital, PayPal Ventures, ABN Amro Ventures and BNP Paribas’ venture arm.

New frontiers: Sifted reports that the UK fintech sector has launched a new lobby group, Fintech Founders, to ensure that its voice is better heard by the government. The founders fear that the start-ups are losing out to the financial services establishment when it comes to arguing their case in the corridors of power.

Crypto chronicles: US insurer MassMutual has joined the ranks of Bitcoin enthusiasts, reports the Wall Street Journal. The newspaper says that MassMutual bought $100m of the digital currency for its $235bn general investment account. The insurer said it was part of a strategy to take advantage of new opportunities.



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UK listing rules set for overhaul in dash to catch Spacs wave

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A Treasury-backed review of the City has called for an overhaul of company listing rules so London can better compete against rivals in New York and Europe and grab a share of the booming market for special purchase acquisition vehicles.

The review, to be published on Wednesday, also proposes allowing dual-class shares to give founders greater control of their businesses and attract a wave of tech companies to the London market.

The City’s attractiveness has stumbled in recent years as the US and Hong Kong have swept up the majority of in-demand tech listings. New York’s markets have been further swelled this year by a surge of so-called Spacs, which raise money from investors and list on a stock market, then look for an acquisition target to take public. Britain’s edge also has been eroded by a loss of trading businesses to European rivals since Brexit.

Rishi Sunak, chancellor, who commissioned the independent report, said the government was determined to enhance the UK’s reputation after leaving the EU, “making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike”.

The review, which was carried out by Lord Jonathan Hill, former EU financial services commissioner, has recommended a wide range of reforms to loosen rules that have tightly governed listings in the UK.

Lord Hill has recommended lowering the limit on the free float of shares in public hands to 15 per cent — meaning founders need to sell fewer shares to list — and wants to “empower retail investors” by helping them participate in capital raisings. 

He has also proposed a “complete rethink” of company prospectuses to cut regulation and encourage capital raising, and suggested rebranding the LSE’s standard listing segment to increase its appeal. The chancellor should also produce an annual “State of the City” report.

The government said it would examine the recommendations — many of which require consultations by the Financial Conduct Authority.

Lord Hill also recommended that the FCA be charged with maintaining the UK’s attractiveness as a place to do business as a regulatory objective. 

The FCA said it aimed to publish a consultation paper by the summer, with new rules expected by late 2021. 

Lord Hill said the proposals were designed to “encourage investment in UK businesses [and] support the development of innovative growth sectors such as tech and life sciences”.

He said the UK should use its post-Brexit ability to set its own rules “to move faster, more flexibly and in a more targeted way”, in particular for growth sectors such as fintech and green finance.

However, the recommendations will cause concern among some institutional investors which have argued that loosening rules around dual-class shares, for example, will risk lowering corporate governance standards. 

The review said London needed to maintain high standards of governance, with various ways recommended to mitigate risk. On dual shares, for example, it recommended safeguards such as a five-year limit.

Amid fears that the government could go too far with a drive for deregulation, Lord Hill said his proposals were “not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage . . . they are about closing a gap which has already opened up”.

Other recommendations include making it easier for companies to provide forward-looking guidance when raising capital by amending the liability regime, and improving the efficiency of the listing process. 

The inclusion of a recommendation to help Spacs list in London by no longer suspending shares after a target is picked will be welcomed by many investors.

However, the rapid growth of such vehicles loaded with billions of dollars in speculative cash has also raised concerns about a bubble forming in the market.

Lord Hill said there was a risk that the UK was losing out on “homegrown and strategically significant companies coming to market in London” from overseas Spacs.

The UK has lagged behind New York and Hong Kong in attracting the types of companies from sectors, such as technology and life sciences, that dominate modern economies and attract investors seeking growth stocks. 

London accounted for only 5 per cent of IPOs globally over the past five years, while the number of listed companies in the UK has fallen by about 40 per cent since 2008. The review also pointed out the most significant companies listed in London were either financial or representative of the “old economy” rather than the “companies of the future”. 

Lord Hill referred to the flow of post-Brexit business to Amsterdam to make the point that the UK faced “stiff competition as a financial centre not just from the US and Asia, but from elsewhere in Europe”.

The steps represent a win for the London Stock Exchange Group, whose chief executive David Schwimmer has called for a more competitive listing regime. He said it was possible to strike a balance between being competitive and maintaining high corporate governance standards.



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Quorn owner Monde Nissin plans record Manila debut share offer

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The Philippines’ top instant noodle producer and owner of UK meat substitute maker Quorn plans to raise as much as $1.5bn from what would be a record initial public offering in Manila.

Monde Nissin, which produces Lucky Me! instant noodles and SkyFlakes crackers, said on Thursday in an IPO prospectus that it would sell 3.6bn shares at up to 17.50 pesos each to raise a total of up to 63bn pesos ($1.3bn).

The listing could raise as much as $1.5bn if banks on the deal exercise an option to sell 540m additional shares.

At $1.3bn, the IPO would already be the largest by a Philippine company as well as a record debut share offer in Manila.

Monde Nissin said the funds raised would be used to boost production at its flagship noodle brand in the Philippines and to increase capacity at Quorn, which Mondo Nissin acquired in 2015 for £550m.

Quorn has enjoyed strong demand in recent years, bolstered by high-profile domestic hits including a “vegan-friendly” sausage roll sold at bakery chain Greggs. Quorn has also partnered with Liverpool Football Club to offer meat-free meals on match days.

But it has struggled to turn out enough of its fungus-based meat substitute to move substantially beyond its retail customer base, even as competitors such as Beyond Meat have clinched deals with chains including McDonald’s.

“They just don’t have enough supply; in the US [in particular] that’s really held them back,” said one banker on the deal, pointing to the limited rollout of a Quorn-based vegan burger known as “The Impostor” through a partnership with KFC.

The banker said Quorn was “going to attack the US much more aggressively” once it boosted capacity. Assuming sufficient supply, there was a long list of fast food clients who would “adopt Quorn because it’s competitive on the chicken side”, the banker added.

The listing, which is expected to price in April, would be the latest big offering in what bankers say is on pace to be one of the strongest years yet for IPOs in south-east Asia — one of the first regions outside China to be hit by the Covid-19 pandemic, and which is expected to be among the first to emerge from it.

ThaiBev, the drinks group, is poised to list its brewery business in Singapore in a deal expected to raise about $2bn and potentially value the unit at up to $10bn, people familiar with the matter told the Financial Times in January.

The Monde Nissin IPO is a rarity for the Philippines in that the entirety of the base offering will be new shares, rather than being sold off by existing shareholders.

Pre-IPO stakeholders include Betty Ang, the company’s president, and the family of her Indonesian husband — the son of Hidayat Darmono, who founded Indonesia’s dominant biscuit maker Khong Guan.

Both Ang and her extended family keep a notoriously low profile. One banker on the deal described Ang and her relatives as “very, very private”.

Bookrunners on the Monde Nissin IPO include UBS, Citigroup and Credit Suisse.



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Asian bourses look to join Spacs craze despite governance concerns

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The Indonesia Stock Exchange has become the third Asian bourse, after Hong Kong and Singapore, to explore allowing special purpose acquisition vehicles, prompting concerns about investor protection as Wall Street’s mania for the vehicles extends to the region.

Investors have poured almost $3bn into Spacs focused on acquiring Asian companies this year, nearly doubling the amount committed during all of 2020, according to Dealogic.

Last year, there was only one Spac deal involving a company based in an Asian country, and just five successful listings of Asian start-ups via Spacs in the past five years.

The rush for targets from a widening pool of investor cash has prompted concerns among some sponsors about inflated valuations for young companies, where management teams may be unprepared for the regulatory requirements of a US listing.

It has also come despite efforts by Asian bourses to tighten restrictions to block backdoor listings and other deals that avoid the strict independent due diligence required of a traditional IPO.

“Everyone is chasing the same deals,” said Frank Troise, chief executive of SoHo Advisors, a boutique US investment bank. “In some cases, there are 12 to 15 sponsors chasing one target.”

Spacs raise money by listing on a stock exchange and then using the proceeds to take promising private businesses public through reverse takeovers. Shareholders do not know which businesses the vehicles will target and invest based on the records of those sponsoring the Spacs.

Investors poured $100bn into Spacs globally last year. The trend has continued into 2021, with 188 vehicles raising $58bn in the US alone.

Some of Asia’s best-known investors and richest tycoons have waded into the asset class, including Ken Hitchner, who ran Goldman Sachs in Asia Pacific, and Fred Hu, a China private equity veteran.

Richard Li, son of Hong Kong tycoon Li Ka-shing and one of the city’s most prominent businessmen, and Peter Thiel, the US tech investor, have also backed large acquisition vehicles aimed at opportunities in the region.

Many Spacs are targeting south-east Asian tech companies, especially after the meteoric rise of New York-listed Sea, a Singapore-headquartered gaming and ecommerce company that was one of the world’s best-performing stocks last year.

GM020307_21X Global Spac acquisitions

Yet most of south-east Asia’s nascent start-ups are valued at under $3bn, the threshold bankers and investors said was needed to take a company public in the US.

The level of interest is there for south-east Asia but “the amount of actual suitable targets is not”, said Ee Ling Lim, a regional director for venture capital firm 500 Startups.

Only a few of the Asia-focused Spacs launched this year had local sponsors or ones with a history of investing in the region.

These included Provident Acquisition, a $200m Spac focused on Asia launched by south-east Asian fund Provident Growth. The firm has backed Gojek, Indonesia’s biggest start-up, and Traveloka, another one of the country’s four unicorns, or private companies valued at over $1bn.

“There are quite a few unicorns already in south-east Asia and more next generation companies coming through, some of which are ready for public markets,” said Michael Aw, chief executive of Provident Acquisition.

Beyond south-east Asia, some Spacs are targeting larger markets including India, where companies are regarded as more mature. Last week, ReNew Power, one of India’s largest renewable energy groups, unveiled plans to go public in New York through an $8bn deal with a Spac.

The New York Stock Exchange and Nasdaq are the prime venues for such listings. But Asian markets are increasingly looking to grab a share.

Johnson Chui, head of Asia capital markets at Credit Suisse, warned that implementing a Spac issuance framework in Singapore, Hong Kong or Indonesia would require “a lot of education” for stakeholders.

Column chart of Total deal value of Asia-focused Spacs ($bn) showing Global boom in Spacs swings to Asia

Hong Kong has captured tech listings in the region but Singapore and regional bourses including Indonesia have grappled with how to convince homegrown unicorns to list locally.

Allowing Spacs would provide companies with “another alternative for fundraising”, said Pandu Sjahrir, Indonesia Stock Exchange commissioner, adding that companies could then tap local bond and bank lending markets with no currency mismatch.

Indonesia has provided fiscal incentives for companies to pursue domestic listings, with capital gains tax falling to 0.1 per cent from 22 per cent for those that list locally.

However, Asia’s limited history of companies successfully going public through a Spac could weigh on the region’s prospects.

New Frontier Group, an investment firm run by Anthony Leung, Hong Kong’s former financial secretary, merged Chinese private hospital United Family Healthcare with its Spac on the New York Stock Exchange in 2019.

But the company has consistently traded below its $10 a share initial offering price and is set to be taken private by a consortium led by Leung. The proposed buyout would value New Frontier Health at $12 a share.

Sponsors have also come under increasing scrutiny for their lucrative compensation, typically receiving a 20 per cent stake in the company for a nominal sum of $25,000.

“Regulators in Asia spent a lot of time cutting backdoor listings because all sorts of folks loved them for making a quick buck,” said one senior investment banker. “Where it falls apart is if we have unscrupulous sponsors or companies trying to get into this market.”



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