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Virgin Wines plans £100m float next month

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Virgin Wines plans to float on London’s junior Aim market next month targeting a £100m valuation, after a surge in demand for its home delivery service during the pandemic.

The online wine retailer, which licenses its brand from Sir Richard Branson’s Virgin empire, offers wines mainly through two subscription schemes and has about 169,000 active customers in the UK, the company said on Tuesday.

Demand for home wine deliveries has been boosted by rolling pub and restaurant closures since the UK first locked down in March last year to stem the spread of Covid-19.

Virgin Wines plans to invest in growth opportunities, including its newly formed beer and spirits unit, and pay down its debts. The company said the off-trade market for wine specialists was worth £2.4bn last year.

Jay Wright, chief executive of Virgin Wines, hailed a year of “strong, consistent growth” for the company in 2020 thanks to “a unique wine sourcing model and a loyal customer base”.

“Underpinned by the strength of our customer proposition as well as the benefit of many positive consumer trends, we have a clear strategy to continue this growth over the coming years,” he added.

In 2013, Wright led a £15.9m management buyout of the company, eight years after the brand was first sold by the Virgin Group, backed by private equity groups Connection Capital and Mobeus Equity Partners.

WineBank and Wine Plan, the company’s two subscription schemes, made up more than half of its £56.6m annual revenue for the year to June 30 2020. Earnings before interest, tax, depreciation and amortisation came to £4.8m over the same period, the group said.

In the six months to December 2020, revenues jumped 55 per cent year on year to £40.6m with ebitda up 196 per cent to £4.5m.

Listed rival Naked Wines reported annual revenues of £202.9m for last year. Since the start of the pandemic, its shares have almost quadrupled giving it a market value of about £585m. The stock was down about 1.5 per cent on Tuesday.

The announcement follows a flurry of stock market flotations in London from companies that have been boosted by consumers’ migration online during the pandemic, including retail and technology company The Hut Group and greeting cards retailer Moonpig. Both soared on their debut as investors embraced the online boom.

Miles Beale, chief executive of the Wine and Spirit Trade Association, said Virgin Wines was likely to benefit as consumers’ shift to online purchases endured beyond the pandemic. “The trend towards more online-ordered, home-delivered supply is highly likely to continue even after the hospitality sector reopens,” he said.

“In practice sales via these channels have seen growth for some time, but this trend has accelerated rapidly during the past year. And, while it is likely to slow again — and indeed reverse, the trend is here to stay.”



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A Lucid sign of the tech bubble

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This week, tech stocks dipped and a generation of entrepreneurs was offered a glimpse of its own mortality.

At the very least, it has been a reminder that a reset is long overdue after a year-long surge in tech stocks — and that capital will not always be as readily, and cheaply, available.

When cash is plentiful, the close alignment between Wall Street and Silicon Valley can feel almost unbreakable. Tech start-ups promising to change the world supply the big vision for investors eager to find a reason to believe. Conditions like this favour so-called story stocks — ventures that can spin a simple narrative about a huge new market opportunity.

A classic of the genre is the electrification of personal transport. This week’s additions to the dream of a world beyond combustion engines include the $4.6bn flowing into luxury electric car maker Lucid Motors and the $1.6bn raised by would-be air taxi service Joby Aviation.

Despite the obvious risks when a wave of capital washes into tech start-ups, there are some benefits. It can, for instance, help to drag new technologies into the mainstream: the tech and telecoms bubble at the turn of the century may have led to huge financial waste, but it funded the communications networks and digital infrastructure to support the next generation of internet companies.

It also means promising technologies are no longer at risk of being underfunded — though simply pouring in cash won’t bring them to commercial viability any quicker. It has taken many years for battery technology to ride the cost curve. The fact that billions of dollars are suddenly available cannot speed that process. Yet Wall Street’s financial vehicle du jour for channelling money into tech start-ups — so-called special purpose acquisition companies that raise cash and then seek a promising company to merge with — come with two very big warning signs.

The first is that, in this new form of stock market-financed venture capital, windfall profits can flow to promoters and speculators long before the new businesses prove their commercial viability. Traditional venture capitalists usually don’t see profits, or get the chance to sell, for years.

The different incentives embedded in Wall Street’s version of VC is exemplified by the Lucid deal. On paper, the Spac involved has already made an 87 per cent profit from its investment, just for doing a deal. And its promoters, who paid a grand total of $25,000 for their “founder shares”, are sitting on a stake the market values at $1.5bn.

The Spac has also provided a vehicle for wild speculation. Its publicly traded shares had already shot up more than fivefold in anticipation of a deal, before falling back by nearly half.

There are some mechanisms to encourage a longer term view, such as placing limits on how soon a Spac’s promoters or follow-on investors can cash out. But the 18 months lock-up on the Lucid Spac’s founders is nothing compared with the many years traditional VCs often have to wait to see a return.

The second concern is that the current close alignment between investors and entrepreneurs is highly unlikely to last. Financial conditions will change. Even with perfect execution over many years of the promises made by start-ups, it will be hard for the new companies to support their current valuations.

Unlike companies that arrive on Wall Street through a traditional initial public offering, Spacs make revenue promises upfront. Joby says it will not have any sales at all until 2024, but then reach $2bn in revenue five years from now. Lucid, which has not launched its first vehicle, is predicting that annual revenue will rise above $20bn within five years — a figure that Tesla only topped in 2019.

These promises are supporting heady valuations. Lucid is judged, on paper, to be worth $24bn. Tesla only reached that after it had been making and selling cars for five years, and a year after its groundbreaking Model S had hit the road.

It may be the case that the world is on the way to more electrification, with luxury cars like those made by Lucid, and air taxis like those operated by Joby, an important part of a clean energy future. But when times change on Wall Street, many investors may no longer have the patience to go along for the ride.

richard.waters@ft.com



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Soho House plans to list in New York with $3bn valuation

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Soho House, the private members’ club group, is making plans to list in New York as early as next month in order to capitalise on investor appetite for travel and leisure stocks as the pandemic subsides.

The company intends to join the stock exchange with a valuation of as much as $3bn, despite the closure due to coronavirus restrictions of 11 of its 27 clubs across Europe, Asia and the US, say people familiar with matter.

Speculation that the target price will rise from a $2bn valuation set in a $100m funding round, led by its majority shareholder the US billionaire Ron Burkle in June last year, is based on anticipation of a boom in demand for travel stocks.

The hospitality group, which also owns 20 restaurants, 16 spas and two cinemas, declined to comment on the plans, first reported in The Times.

Shares in the hotel company Marriott are up 26 per cent since February, while Airbnb’s share price has increased more than 40 per cent since it listed in December.

Despite steep drops in revenues as a result of sites being closed, Soho House has managed to retain more than 90 per cent of its paying members during the pandemic. A typical annual membership costs £1,750.

However, Soho House’s recently filed accounts show the company stopped making interest payments on its loan in cash last year, instead choosing to use a “payment in kind” option. This allows companies with limited cash flow to pay lenders with more debt instead.

Permira Debt Managers, the credit arm of the private equity house, originally provided this £350m loan to the private members’ club in 2017, describing the debt deal as its “largest ever direct lending investment” at the time.

The private debt deal came two years after Soho House had to scrap a £200m high-yield bond sale, as investors balked at the company’s high leverage and limited free cash flow.

It is the second time Soho House has mooted a stock market flotation.

It pulled a planned New York listing in 2018, saying it did not need to raise capital as it had Permira’s backing and its owners — who include Burkle, the hospitality entrepreneur Richard Caring and Soho House founder Nick Jones — did not want to sell out.

Jones, who opened his first Soho House in 1995, told the Financial Times last year that the group did not need to consider a listing as “there is a nice lot of demand from people to invest in the company as it is”.

Over the past 26 years, Soho House has grown rapidly, becoming a hotspot for celebrity guests by targeting wealthy urbanites in the creative industries.

According to its 2019 accounts, it made £293m in revenues, 49 per cent of which came from food and drink sales and 20 per cent from members’ subscriptions with the remainder coming from its own-brand range of homewares. It reported a pre-tax loss of £77m.

During the pandemic, the group was forced to lay off 1,000 of its 8,000 employees.



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Should the UK change its listing rules to attract more overseas companies?

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Yes — Free float and dual-class share structures need reform

Late last year, the UK launched a review of its rules for stock exchange listings as part of a broader effort to strengthen London’s “position as a leading global financial centre”, writes Lorna Tilbian.

Brexit and the pandemic make it critical for the UK to seize this chance to reshape our rule book. The listings market must be made more attractive to fast-growing tech and other new economy companies that will create the growth and jobs of the future. 

This would put Britain at the forefront of the fourth industrial revolution, as it was at the first, and cement London’s reputation as a world-class market with high standards of governance, shareholder rights and transparency. 

Here are two key areas where change is needed to make the UK more competitive: the rules on free float and dual-class share structures. The UK requires listed companies to have at least 25 per cent of their shares in public hands, as opposed to insiders. US rules do not preclude free floats as low as 10 per cent. Similarly, the US and Hong Kong allow companies to list with multiple classes of shares with different voting rights, while the UK does not.

These firm rules are major obstacles to the London Stock Exchange’s efforts to attract fast-growth businesses. Many founders worry about retaining control of their businesses after an initial public offering and early investors are concerned the free float requirements will force them to sell shares earlier — and cheaper — than they would like.

Most founders want the higher valuation and liquidity that are seen to be part of a “premium” listing, as well as membership in the FTSE indices. So, it would do little to create another type of listing with looser rules. The dual-class share issue is also a problem for founders who want enhanced voting rights to help guard against a hostile takeover.

The UK has an interest in strengthening founders’ rights as well, as it would make listed companies less vulnerable to acquisition early in life by a foreign company. Such purchases impoverish the British ecosystem of tech companies and listed companies more broadly. Not all dual-class shareholder systems are alike, and a balanced conversation about types and limits is welcome.

Many UK founders would like a home listing, to be famous here and give back, but they feel pulled to the US, where tech founders are feted on Wall Street, Main Street and in the media and can obtain higher valuations.

Indeed, valuation is London’s overarching challenge. For most companies contemplating an IPO, the major goal is to achieve the highest price, to reward employees and investors, and facilitate future growth. Until the UK has a critical mass of businesses with attractive valuations, we will need rules that actively draw them here.

We need an ecosystem and potentially new FTSE sectors to attract entrepreneurs, bankers, analysts and investors. The media sector was created after the early 1990s recession by merging agencies with broadcasting and publishing, plucked out of other sectors. This helped spawn a dozen FTSE 100 media companies by 2000, including Sky and WPP.

The debate over listing rules is often framed as high regulation versus cutting rules to win IPOs, but it is really about striking the right balance. The dilution of shareholder rights should be minimised, but anything that deters listings will be a pyrrhic victory.

UK public markets must embrace founder-led businesses and celebrate fast-growth companies that represent jobs and the future of an independent Britain. The US’s Nasdaq must not remain the natural destination for aspirational tech companies and London must stave off increasing competition from European exchanges.

If we miss this opportunity, the UK’s pipeline of growth companies could go to the US or be sold to private equity or competitors. London already has a time and language advantage; we must create a regulatory advantage to attract these IPOs before it is too late.

The writer chairs Dowgate Capital

No — Britain’s high standards must not be sacrificed

Re-energising the UK’s capital markets has never been more important, but it requires more than reassessing the listing rules, writes Chris Cummings. We need a wider look at the capital market ecosystem for fast-growing companies. Only then will we boost our reputation as an attractive centre for companies to list and investors to do business.

The Covid-19 pandemic has highlighted the importance of public markets and the role investment can play in delivering benefits for the economy, society, and the planet. By attracting high-growth companies of the future to list, a healthy public market which embraces innovation will deliver the long-term returns that savers and investment managers need. We want these companies to list and locate their operations here, bringing new jobs and much-needed tax revenue.

But success is not just about increasing the number of initial public offerings. We must be confident in the quality of companies looking to list and their ability to provide long-term value. The UK’s ambition to be a global leader in stewardship and sustainability must also be reflected in the listing requirements and they must give shareholders sufficient ability to hold companies to account. If we make any changes to attract high-growth, innovative companies, we must keep the rules sufficiently robust to protect savers’ money.

For the “premium” segment, which has the highest standards, this is particularly important, as tracker funds must buy shares in these companies to replicate the FTSE index. With more than £250bn invested in these funds, it is paramount that investors have the powers they need to oversee these companies and confidence in their governance.

A 25 per cent free float requirement protects investors by guaranteeing liquidity and ensuring there are enough minority shareholders to raise concerns with the management. There is an argument for reducing the free float if the company’s market capitalisation is sufficiently large, but such flexibility would need to include voting safeguards for independent shareholders.

The current listing regime offers flexibility for companies that want multiple classes of shareholders in the “standard” segment, but it is perceived to be a poor relation. By rebranding it, we can increase its appeal to entrepreneurs. Founders could maintain voting control, while at the same time using a standard listing as a springboard to a premium listing.

Attracting more companies to this segment and making it easier for groups to move between segments will increase the UK’s appeal as a place to list. More work also needs to be done to promote the flexibility offered by the current system and categories — done well this can be a selling point for the UK. There should be a proactive unit which brings resources from within government and the regulators to help achieve this.

The pandemic has also highlighted areas where the UK should look to reduce more onerous listing requirements. Between March and the end of November, 73 members of the FTSE All-Share index raised more than £22bn of additional capital using mainly trading updates rather than full prospectuses. This suggests that prospectus and record requirements can and should be cut, making it easier for companies to list and raise additional capital.

There are also lessons to be learnt from wider trends. The number of IPOs globally dropped in the 2010s as more companies opted to stay private and is only beginning to recover. For public markets to flourish, we need to tailor our listing regime to support companies in different phases of growth, restructuring and into maturity.

The listing rules are not the only barrier on companies’ appetite to list in the UK. Companies also consider the wider ecosystem. The UK needs to grow the pool of specialist tech-focused lawyers and advisers who can support the high-growth companies we wish to attract.

The listing review is important, but we need to consider it in the context of much wider issues and not sacrifice the high standards for which the UK is known. The prize — wider access to capital for UK and international businesses, more high-growth companies operating in the UK and robust governance delivering long-term returns for British savers and the wider economy — is one we can all agree is worth striving for.

The writer is chief executive of the Investment Association



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