Connect with us

IPOs / FFOs

Crypto marketplace Bakkt to go public through Spac deal

Published

on


Bakkt Holdings, a cryptocurrency platform majority owned by Intercontinental Exchange, has announced plans to go public through a combination with a blank-cheque company, bringing together two of the frothiest elements of US markets.

New York Stock Exchange parent ICE on Monday said Bakkt has agreed to combine with a Spac sponsored by Chicago-based investment firm Victory Park Capital. 

Bakkt, formed by ICE in 2018, is planning to launch an app in March that will let users buy and sell cryptocurrencies and manage other digital assets such as loyalty points and gift cards. Its ambition is to reach more than 30m customers by 2025, from none last year, it says in its regulatory filing. The app, currently accessible only by invitation, has garnered interest from about 400,000 people seeking early access, Bakkt said.

When listed on the NYSE, it will have an enterprise value of $2.1bn, ICE said.

Monday’s deal highlights how a rising number of mainstream companies and investors are dabbling in the cryptocurrency sector. Bakkt’s plans for a public market debut come about a month after Coinbase, a well-known digital currency exchange, announced its intention to float its shares in an initial public offering.

The announcement also demonstrates how Spacs offer a smoother route to public markets for companies with new technologies and earlier stage businesses. Last year, Spacs made up almost $76bn of the $159bn raised by IPOs in the US, outpacing traditional listings since August.

Last month, veteran investor Jeremy Grantham described the Spacs craze as “reprehensible”, despite himself making some $200m out of an early bet on battery maker QuantumScape after it went public through a Spac vehicle.

The rising focus on digital assets comes as bitcoin, the most actively traded digital token, has surged in value in recent months. Volatility remains high, however, highlighting the asset’s immaturity. Bitcoin prices dropped roughly a fifth at the start of this week as a top UK financial regulator renewed its warning that consumers investing in cryptocurrencies should “be prepared to lose all their money”.

Bakkt also offers a cryptocurrency storage service and bitcoin derivatives contracts. ICE’s revenues related to Bakkt are expected to be roughly $9m for the fourth quarter of 2020, with operating expenses of about $39m. It will have some $500m in cash on its balance sheet, reflecting $207m held by the Spac’s trust account and a $325m private placement of shares in the combined entity, including a $50m contribution from ICE.

Gavin Michael, the former head of technology for Citigroup’s global consumer bank, will take the reins as chief executive of the combined company, Bakkt said on Monday. “The average consumer holds a wealth of digital assets but rarely tracks their value and lacks the tools to manage and utilise them,” Mr Michael said.

David Clifton, Bakkt’s interim chief, will join the combined company’s board after the deal closes.



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

IPOs / FFOs

Pershing/UMG: Dance to the music of time

Published

on

By


Bill Ackman updates

Hold off the requiem. Regulators may have forced Bill Ackman to scrap plans to acquire 10 per cent of Universal Music Group via his Spac, but the deal lives on. Rather than investors in Pershing Square Tontine Holdings receiving UMG shares, plus an extra $1.6bn cash left to spend, and warrants, shares in the record label will go into Ackman’s Pershing Square hedge fund.

The original deal had kerbside appeal. Unlike many other Spac deals, there was no dilution from free founders’ shares. It gave those investors access to a resurgent music label on a slightly cheaper multiple than rival Warner Music. Vivendi, UMG’s current owner, plans to list the shares in September so buying in via Ackman’s Spac would have given investors a cut-price backstage pass.

True, an implied enterprise value of €35bn exceeded the €30bn accorded to a similarly sized acquisition by a consortium led by Chinese tech giant Tencent just six months earlier. But it was comfortably shy of the €40bn or so pencilled in by optimistic brokerage analysts. JPMorgan, unsurprisingly home to Ackman’s favourite analyst, put the figure as high as €50bn. On those numbers — $20.20 per share, a shade below PSTH’s current share price — the RemainCo cash and warrants would come cheaply.

Buying Vivendi, which plans to disburse shares of UMG on Amsterdam Euronext via a special distribution, means rump assets have an uncertain value. Citi analysts put this above €14 a share. UMG distributed as a dividend in kind also attracts withholding tax liabilities, to which some minorities, such as Bluebell, have objected. It has moaned about any previous tax advantages accorded to Ackman’s Spac purchase.

Pershing says it plans to remain a shareholder in UMG for the long haul. For a music industry that has cycled through myriad different musical genres and business models, this sounds bold. UMG has been the home of music idols from The Beatles to Lady Gaga and Taylor Swift. A groundbreaking Spac, it appears, was one revolution too much for regulators.

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.



Source link

Continue Reading

IPOs / FFOs

‘The IPO is a black box’: Robinhood’s unconventional stock market debut

Published

on

By


IPOs updates

The decision by retail brokerage app Robinhood to reserve an unusually large stake in its initial public offering this week for its own customers has money managers girding for a volatile trading debut. 

The company, which enabled retail investors to drive vertiginous moves in meme stocks, expects to allocate as much as 35 per cent of the 55m shares it plans to sell to investors buying directly through its app.

Robinhood heralded the decision as a means to democratise a corner of the stock market ordinarily roped off for institutions. But it marks a departure from typical IPOs, where 10-20 per cent of the shares are earmarked for the retail segment.

The move creates a quandary for the large institutional investors that can make or break an IPO. Some intend to sit out the listing, fearful that the outsized retail allocation signals lukewarm enthusiasm for the stock by other big money managers, according to a top asset manager who invests in IPOs. Robinhood’s shares are expected to price on Wednesday and begin trading on Thursday, according to people briefed on the matter. 

Others have struggled to compare the potential behaviour of retail buyers in Robinhood’s IPO to historical norms. In traditional listings the retail buying base largely comes from customers with the underwriting banks — often wealthy people who maintain brokerage accounts at such institutions as Bank of America or JPMorgan Chase.

By contrast, half of Robinhood’s customers are novice investors and many opened their accounts in the past year.

Line chart of Year-to-date performance (%) showing Recent US IPOs have lagged behind broader market gains

Robinhood has said it would allocate shares at random through its IPO Access system, a feature of its platform that allows investors to apply to obtain shares at the IPO listing price for companies that offer their shares to retail customers.

“Everybody expects more volatility in the trading, that’s it,” said one equities trader at a large New York asset manager. “The more stock in retail hands, the more volatile it is.” 

The power of Robinhood’s community of small investors to collectively move share prices came into sharp focus this year. Fuelled by social media, they helped drive meme stocks such as theatre chain AMC and video game retailer GameStop into the stratosphere with little apparent connection to their underlying businesses. Some on Wall Street are bracing for similar swings in Robinhood’s own shares. 

“With this novel allocation to retail investors, the IPO is a black box in terms of how they’re going to allocate and who they’re going to allocate to, versus the investment banks, where you know what is going to happen in the after-market,” said David Erickson, a lecturer at the University of Pennsylvania’s Wharton business school and former IPO banker.

“Most serious investors will wait and see what happens. Maybe Robinhood will become the next meme stock,” he added.

Traders and portfolio managers said they expected that retail traders on Robinhood could drive greater price swings than the hedge funds that make up a portion of the buying base in most IPOs.

And while that could mean a choppy first day of trading, one trader noted there was also the possibility of a large pop, given how traders on Robinhood have turned other companies into must-buy stocks.

Robinhood declined to comment. The Menlo Park, California-based company is seeking a valuation of up to $35bn as it aims to price its shares between $38 and $42 apiece. The stock will trade on the Nasdaq under the ticker ‘HOOD’.

“They may get a ‘meme-bump’ . . . but it’s not sustainable,” said Logan Allin, founder of Bay-area fintech investment firm Fin Venture Capital, who declined to join Robinhood’s earlier funding rounds. “The hype will be shortlived.”

The lock-up for institutional investors, a period in which they are not permitted to sell their shares, will be 125 days after the IPO, according to the prospectus, which Allin and other experienced investors said was unusually short. The average lock-up is more than 180 days, according to Dealogic data.

Retail investors can sell their shares as soon as the stock begins trading, adding to investor anxieties that DIY investors will be more likely than large institutions to sell positions, pressuring the share price. However, if retail investors who bought through Robinhood directly sell within 30 days, the company will ban them from IPO access for two months.

“We’d never rule anything out, especially with 35 per cent of the deal being placed with Robinhood customers,” the institutional investor said. “They don’t care about valuation in a lot of things they traffic in.”



Source link

Continue Reading

IPOs / FFOs

IPO prospectuses: the long and longer of it

Published

on

By


IPOs updates

Given the sky-high valuations achieved by market newbies, it is fitting that their prospectuses achieve equally ridiculous bulk. US-listed ride-hailing apps Didi and Uber both bombarded would-be investors with about 400 pages of information. Paytm, listing in India, this month bested the duo with a 500-page “red herring”, as preliminary prospectuses are known.

This is massive page inflation. Microsoft, going public in 1986, said all it needed to in 50 pages. A couple of decades later Google weighed in at 230.

Perhaps life was simply easier back then. Bill Gates reportedly appointed Goldman Sachs to steer Microsoft’s initial public offering on the basis that they did not spill their food and “seemed like nice guys”.

Microsoft was also profitable and cheap, more than can be said for much of the current crop of debutantes. Despite being priced higher than Gates wanted, shares were valued at 5.5 times trailing revenues. This is one-quarter the price tag secured by survey software maker Qualtrics (250-page prospectus) 35 years later.

There is little correlation between a prospectus’s girth and market capitalisation. In Europe, the document for a sub-€150m company is on average only a third shorter than those valued at €1bn-plus, says Oxera, a consultancy. Nor does it correlate with an extended spell as a private business: Microsoft spent just as long time in private hands as many of today’s debutantes.

Chart of length of prospectus documents in terms of number of pages, by country. It shows that the median length of Italian prospectuses is over 800 pages

Regulations, including provisions under Sarbanes-Oxley, only partly explain the verbosity. Likewise complexity. Some of the fodder in today’s prospectuses is kindergarten-simple. Pictures and flow charts padded out Meituan Dianping’s 700 pages.

For investors, more is not necessarily better. Boilerplate risk statements are so broad and lengthy as to be pointless. Alibaba’s blockbuster IPO was accompanied by many warnings of the legal grey area inhabited by its variable interest entity structure — as was every subsequent Chinese offering. Yet shockwaves over such structures are once again reverberating.

Column chart of Average number of words in filings showing The age of verbosity

Investors bleating at Didi Chuxing’s admittedly steep regulatory roadblocks perhaps struggled to get past page 3, where the company warns: “Our business is subject to numerous legal and regulatory risks that could have an adverse impact on our business and future prospects.”

Standardisation discourages scrutiny. Companies have followed Google’s lead in displaying their civic stripes but have added new, often unhelpful, metrics. Total addressable markets is a case in point. Deliveroo claims a TAM 1,000 times the size of its actual 2020 revenues. Time to cut prospectuses — and fantasy metrics — down to size.

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline



Source link

Continue Reading

Trending