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UK disrupter hopes to make Cazoo the vehicle to shake up used car sales

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Just as his property website Zoopla was taking off, Alex Chesterman made a vow that there would be no more start-ups.

His wife had just said no to more children after their second — a decision he promised to match by calling it a day after two successful but time consuming businesses that yielded several hundred million pounds for the UK entrepreneur.

But that pledge was quickly broken. This week, the 51-year-old Londoner revealed plans to list his two-year-old start-up car retailer Cazoo in New York at a valuation of $7bn, using billionaire investor Daniel Och’s special purpose acquisition company.

The deal is his biggest yet — and the highest initial listing value of any UK company on the New York Stock Exchange. But it will be a major test for Chesterman as he seeks to scale up the business rapidly to justify a valuation that some in the UK tech market think rather high.

“Its certainly seems at the wrong value now,” said one prominent VC investor, “whether it will be in future is the question”. 

But his record gives investors hope. For a self-confessed imitator of other people’s ideas, Chesterman has managed to turn his own frustrations over markets in need of a shake-up into several fortunes and a lasting impact on the UK consumer.

Lovefilm, the DVD rental service he sold for £200m in 2011 to Amazon as the UK’s answer to Netflix, preceded the end of the high street video store.

Zoopla, the property portal he floated in 2014 and sold to Silver Lake for £2.2bn in 2018, netting him about £300m, tapped into the British obsession with the values of other people’s houses, at a cost to traditional estate agents.

He wants Cazoo to do the same to the used car sales forecourt — making the process of buying a vehicle quicker, lower cost and with your purchase delivered to your door. 

The deal will make about £100m for Chesterman — who owns about a quarter of Cazoo — on top of a similar amount last autumn at the company’s last private fundraising. 

All three start-ups came from spotting the success of others in the US — Cazoo from a TV ad for US car seller Carvana — but transplanted and changed for the European market.

He describes it as “second mover advantage . . . we are the first in our market, but having let others figure out what works and doesn’t work”.

Chesterman is often treated with suspicion by incumbents — some dealers are still sceptical whether Cazoo will make a profit. He admits that he is unlikely to know more about these markets but has found that ignorance can be an advantage.

“Fixing stuff that’s broken,” as he puts it. “I like to watch films, I live in a house, I drive a car. If you think like a consumer, and if you think that there’s a way to improve that market, then it’s likely that most consumers feel the same way.”

Chesterman, who was educated at St Paul’s School and then University College London, had an offer to work at Goldman Sachs when a family friend offered instead to put him on the management programme for the Hard Rock Cafe in Florida.

He intended to take a three month sabbatical there but ended up spending 10 years in the US, first running a branch of Hard Rock and then, when the same friend started Planet Hollywood, joining as one of its first employees.

A family emergency brought him back to London, where he initially sought to continue his career in hospitality with a bagel shop chain in 1999. Realising it was worth more for its real estate, he spotted the opportunity in the mid-noughties tech sector with DVD home delivery.

Those who work with him say he can be emotionally detached and obsessive over details. Others describe him as a canny deal maker — both in bolting on smaller rivals to build businesses and knowing the best time to sell.

“He is not a flash guy,” said one person who has worked closely with him, “and he works all hours given; he could have retired years ago”.

Chesterman drives a Range Rover — though says he would buy his next car from Cazoo when the time comes — and lives in a house in Highgate in London. His money is spent on taking his family on holiday, although as an angel investor he has also bought stakes in start-ups such as Graze, CarWow and Farmdrop.

But his time at the moment is dominated by Cazoo, which he sees as his biggest chance yet — predicting it will be a £20bn business. In floating in New York, he says he wants to take it to investors that understand his business best and that London does not want fast growing but loss making start-ups. No amount of listing reforms as promised by the government would have changed that.

“I think this is probably my last one,” he says of his involvement with Cazoo, before adding: “But I have been caught having said that before.”



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Paper producer Segezha plans Moscow IPO

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Paper producer Segezha is planning an initial public offering on the Moscow exchange, making it the latest in a series of Russian companies looking to tap surging investor demand.

Segezha, which is owned by oligarch Vladimir Yevtushenkov’s Sistema conglomerate, said on Monday that it wanted to raise at least Rbs30bn ($388m) in the IPO. It is seeking a valuation of more than $1.5bn, according to a person familiar with the plans.

The structure of the offering will allow Sistema to retain control of the company.

Russian companies are rushing to go public in response to high demand for emerging market assets and in case geopolitical tensions with the west make it harder to list.

The stimulus-fuelled global stock market boom and a rebound in commodity prices have helped Russia’s market recover quickly from the pandemic.

The Moscow exchange’s benchmark index hit record highs in March and Russian central bank rates remain near an all-time low. Last year, the bourse doubled its number of retail investors to 10m as homebound traders moved away from bank deposits.

In March, discount retailer Fix Price held the largest Russian IPO since the US and EU imposed sanctions against Moscow in 2014. Ecommerce site Ozon, which is co-owned by Sistema, has more than doubled its valuation to about $12.5bn after going public in New York last year.

But the sell-off of the rouble on tensions with the US and the military build-up on the Ukrainian border has underlined that going public remains precarious.

GV Gold, a midsized goldminer whose key shareholders include BlackRock, said late last month it would postpone its IPO — the third time the company has announced a listing then backtracked — because of “elevated levels of market volatility in both the global and Russian capital markets”.

Segezha, which reported nearly $1bn of revenue last year and operating profit of $242m, is the fifth-largest producer of birch plywood in the world and is in the top two for production of heavy duty “multiwall” paper packaging.

Prices for its products have rebounded during the recent economic recovery, while 72 per cent of its revenue comes from export sales in foreign currencies — allowing it to take advantage of the weak rouble at its mostly Russian cost base.

“Bringing Segezha Group to the public markets will crystallize the value of our investment, raise funds that would allow Segezha Group to continue to pursue its investment projects and provide investors with the opportunity to share in the company’s strong growth and benefit from attractive returns,” Sistema chief executive Vladimir Chirakhov said in a statement.

JPMorgan, UBS, and VTB Capital are joint global co-ordinators and joint bookrunners on the IPO. Alfa Capital Markets, Gazprombank, BofA Securities, and Renaissance Capital are joint bookrunners.



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Spac boom under threat as deal funding dries up

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A crucial source of funding for blank-cheque company deals is drying up, pointing to a slowdown for one of Wall Street’s hottest products after a record-breaking quarter. 

Advisers to special purpose acquisition companies, which float on the stock market and then go hunting for a company to buy, say they are struggling to find so-called Pipe financing to complete their planned acquisitions. Pipe is short for private investment in public equity.

Institutional investors such as Fidelity and Wellington Management have ploughed billions of dollars into Pipe deals since the Spac boom emerged last year, providing a route to the public markets for businesses ranging from established software and entertainment companies to speculative developers of flying taxis and electric vehicle technology. 

But people involved in arranging the deals say Pipe investors are overwhelmed by the sheer volume of transactions and put off by rising valuations. 

“There is a lot of indigestion,” said one senior bank executive. “The pendulum has swung to where if you’re in the market with a Pipe right now, it’s going to be really hard and painful. A Spac goes back into the ocean if you can’t get a Pipe done.”

Spacs raise money when they first list on the stock market but they typically require more capital to fund their acquisition. Large institutional investors also act as a form of validation of the target company’s business prospects and its valuation.

There have been 117 deals announced this year, but the growing backlog in Pipes could prove to be a big roadblock for the 497 blank-cheque companies that are still looking for a deal, according to Refinitiv data.

Only about 25 per cent of Spacs listed since 2019 have completed deals so far. Sponsors typically have two years to complete a merger, otherwise they have to return the capital they raised to investors.

Several market participants said the slowdown would lead to a “flight to quality” and put downward pressure on the valuations of acquisition targets, which have skyrocketed in recent months.

Almost all of the executives the Financial Times interviewed said they were seeing Spac deals recut to offer more favourable terms to Pipe investors. One said: “It’s called the buy side for a reason.” 

Because Pipe investments are considered illiquid — the money is tied up at least until the deal closes and there may be a lock-up period after that — investors can usually get favourable terms. They can see the deal before it has been announced to the public and are almost always able to buy in at the Spac listing price of $10.

But earlier this year, Pipe investors were clamouring to get in on Spac deals. The group of institutions that backed Churchill Capital IV’s acquisition of electric carmaker Lucid paid a 50 per cent premium to the Spac listing price to get a stake, almost unheard of at the time.

The recent reversal has Pipe investors negotiating lower valuations for businesses, giving them larger stakes for the same amount of money, and better pricing terms.

“There’s only so much illiquid exposure investors are going to want to take,” said another bank executive who has worked on numerous Spac deals.

The Pipe slowdown is bad news for banks, which are unable to collect on advisory fees if they cannot sell a deal to investors.

It is also starting to affect the pipeline of Spac launches, lawyers and bankers said. In the first seven days of this month, only four blank cheque companies have gone public. That compares with 41 during the first week of March and 28 in February, Refinitiv data shows. 

“Where we had been at a crazy, mad, rush pace in January and February, we’re kind of at a standstill right now on the IPO side,” said Ari Edelman, partner in Reed Smith’s corporate practice.

For those that already went public and are looking for a target, he added, “the hope is this is just a bump in the road. And then ultimately the deal gets done.”



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UK-backed vaccine maker warns of export restrictions in IPO filing

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Valneva, the French Covid-19 vaccine maker backed by the UK government, has filed for a US initial public offering seeking to take advantage of investor appetite for biotechnology during the pandemic. 

The Paris-listed company, with a market cap of more than €1bn, filed to raise $100m in American Depositary Shares, the day after Vaccitech, the Oxford spinout that owns the platform behind the AstraZeneca vaccine, published its filing

Valneva has a deal worth up to €1.4bn to supply Covid-19 vaccines to the UK, manufacturing the doses in a Scottish factory expanded with government funds. The UK has already agreed to buy 100m shots and has an option to purchase 90m more by 2025. Valneva has already received almost £100m from the government. 

But in its filing, Valneva warned that any restrictions on importing or exporting vaccines out of the EU could have a “substantial” risk to its operation. The vaccine is due to be manufactured in the UK but put into vials and packaged in the EU, it said. 

Shortfalls in supply of vaccines to the EU have led to tensions between the UK and the EU over importing shots and raw materials for the current approved jabs from Oxford/AstraZeneca and BioNTech/Pfizer.

Valneva’s filing comes after it announced positive early stage trial results for its Covid-19 earlier this week, planning to launch a later stage study this month and apply for a UK approval in the autumn.

The phase 1 and 2 study showed the shot elicited more antibodies in the participants receiving the highest dose than are usually seen in recovered Covid-19 patients, with over 90 per cent producing significant levels of antibodies. The jab also induced a response from another key part of the immune system, the T-cells. 

The vaccine, which uses a whole inactivated virus, a more traditional approach than the currently approved shots, could be used as a booster for the vaccinated or to tackle variants of the virus.

Valneva said even though it would be approved much later, it could have a competitive advantage against its rivals. 

“We believe that, if approved, our vaccine, as an inactivated virus vaccine, could offer benefits in terms of safety, cost, ease of manufacture and distribution compared to currently approved vaccines and could be adapted to offer protection against mutations of the virus,” it said in the filing. 

But it also said that it did not yet have the rights to use the strain of virus in the vaccine on the commercial market. It is in the process of negotiating a commercial agreement with the World Health Organisation and the Italian National Institute for Infectious Diseases. 

Valneva is also developing vaccines for Lyme Disease and chikungunya, a virus transmitted by mosquitoes. Total revenue was €110m in 2020, down from €126m in 2019, as sales of its travel vaccines were hit by restrictions on travel during the pandemic. 

It made a loss of €0.71 per share last year, after it had to make a €7.4m writedown, partly because of the limited shelf life of the products. Valneva also had to renegotiate a debt financing agreement last year as it was at risk of not meeting the minimum revenue covenant.



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