Endeavor’s IPO filing Thursday offers a hard look at the company’s financial performance during the past three years during a period of rapid growth for the company that’s home to UFC, WME, Professional Bull Riders and a clutch of other assets.
Endeavor is generating solid free cash flow from operations and healthy adjusted earnings for a company with its revenue base. But the spree of investments, acquisitions and restructuring over the past five years has led to a net income loss of $98 million in 2016 and $173 million in 2017. Net income was positive in 2018 ($231 million), thanks mostly to a nearly $400 million gain on the sale of the IMG College sports marketing unit.
Adjusted earnings before interest, taxes, depreciation and amortization, balanced for one-time events, were $355.1 million in 2016, $516.1 million in 2017 and $551 million in 2018, on revenue that jumped from $2.3 billion in 2016 to $3.6 billion last year. The acquisition of MMA giant UFC for $4 billion in August 2016 greatly expanded Endeavor’s earnings power. But it also added to the company’s debt load. At present, Endeavor is shouldering about $4.6 billion in debt and $500 million in cash on hand.
The prospectus filing signals the start of the company’s roadshow with Wall Streeters and investment firms to generate enthusiasm for the IPO. There’s still no timetable for the IPO date. Endeavor plans to trade on the New York Stock Exchange under the EDR symbol.
Endeavor will have controlling shareholders that command more than 50% of the voting power in the company, which gives them a tight grip on the board of directors and management decisions — similar to the Redstone family’s control of CBS and Viacom and the Roberts family’s control of Comcast. Endeavor CEO Ari Emanuel and chairman Patrick Whitesell are among those voting shareholders, along with private equity giant Silver Lake that has financed Endeavor’s expansion since 2012.
The roughly 350-page prospectus offers a host of other details about Endeavor’s operations. The timing is tough for the company as WME and its largest Hollywood rivals are in the midst of litigation and franchise agreement negotiations with the WGA that has led to writers severing ties with their agents, at least for now. That’s not the business climate Endeavor wants to sell to investors. The WGA and Association of Talent Agents are set to resume negotiations next week.
Among the highlights of the prospectus:
Emanuel’s 2018 compensation package hit about $5.3 million, including $1 million salary and $4 million in bonuses. Emanuel and Whitesell signed contract extensions in March that will keep them at the company through the end of 2028. Both received nearly $600,000 lump sum payment after reaching the contract extension. And both are set to see their base salary climb to $4 million once Endeavor formally goes public. Whitesell took in about $5 million in compensation last year.
IMG president Mark Shapiro received $10.2 million in 2018 compensation. That included a salary of $1.7 million, an equity grant valued at $5.8 million and nearly $2.7 million in bonuses.
Endeavor’s Representation division will house the talent agent operations of WME and IMG Models, as well as the Endeavor Content unit. Endeavor Content is the production-distribution operation but it also offers finance-arranging and advisory services to outside entities, as well as WME clients.
For the first quarter of this year, revenue in the Representation division was up 20% over the year-ago period to $322 million. The gains were credited to “talent and brand representation businesses, including Fusion Marketing and IMG Live and licensing.”
Adjusted EBITDA for the Representation division grew 47% year-over-year to $80.3 million. Earnings were fueled by the strong revenue gains but “partially offset by increases in costs related to personnel, facilities and content production.”
The sale last month of Endeavor’s 49% stake in advertising agency Droga5 to consulting giant Accenture yielded $233 million.
When the ride-hailing company went public earlier this month its current and former employees amassed roughly $3.25 billion in Uber stock — that’s enough money to buy every home for sale in San Francisco, Berkeley and Oakland, according to real estate brokerage Redfin. And there’d still be half a billion dollars left over.
Redfin used Uber’s pre-IPO price of $45 per share to run its numbers. The company’s stock has since fallen below that level and currently changes hands at about $41 per share.
The analysis is meant to give a sense of how much wealth has been created by Uber’s IPO and how it might affect the housing market, Redfin’s chief economist, Daryl Fairweather, said in an interview.
“This has really put a new jolt into the San Francisco housing market where otherwise it might have stabilized,” Fairweather said. “San Francisco is seeing double digit price growth, which is pretty remarkable.”
San Francisco is the most expensive large housing market in the US, with an average home costing $1.43 million as of April, according to Redfin. The high prices may be good news for existing homeowners, but they’re likely bad news for everyone else who isn’t expecting a Silicon Valley IPO windfall.
“San Francisco has been grappling with this increase of prosperity for a long time,” Fairweather said. “This is only going to make the situation worse.”
Redfin calculated the employee value of Uber’s IPO using the company’s global workforce of 22,263 people. It’s unclear how many of those employees live in the Bay Area and work at its San Francisco headquarters. Rough estimates put the number at around 6,000 employees.
As far as available homes in the Bay Area, Redfin estimates that there are 1,661 homes currently for sale in San Francisco, Oakland and Berkeley that are worth a combined total of $2.85 billion. And the 862 homes for sale just in San Francisco are worth $2.1 billion.
Fairweather said Redfin has seen a jump in the San Francisco housing market as tech companies have gone public over the past couple of months. Home prices were down at the beginning of this year, she said, but by April that changed.
The city’s housing crunch and wealth inequality will likely intensify without a major increase to housing supply, Fairweather added. People who don’t work in the tech industry, like nurses, teachers, nonprofit workers and artists, will continue to move out of San Francisco because it’s become so unaffordable.
“It’s the No. 1 city for people who are looking to leave,” Fairweather said, citing Redfin’s migration data. “As affordability becomes more of an issue, that will continue to happen.”
The increasing trade tension between China and the US has caused carnage for US listed Chinese ADRs, but Luckin Coffee (LK) was able to surge on its IPO. Priced at $17, the $561 million IPO surged as high as $25.96 before settling at $20.38. While there were many articles about Luckin Coffee in the past week, most merely summarized general information about the company as reported in its IPO prospectus. In this article, I will dive deeper into some of Luckin Coffee’s operations to give investors a gauge if this IPO is worth the risk.
For readers who have not looked into Luckin Coffee’s general business overview, I will briefly summarize them before crunching its operating numbers. As a newly company, all the information in this article was taken from LK’s IPO prospectus.
The IPO size was 33 ADR million shares with an over-allotment of an additional 4.95 million shares. If LK shares do well and hold above the $17 IPO price, it’s likely that the over-allotment will be fully exercised. Each ADR represents 8 ordinary shares and there are 1.883 billion ordinary shares post IPO, or about 235.4 million ADR equivalent if fully converted. Thus at $20.38, Luckin Coffee has a market capitalization of approximately $4.8 billion. If we annualized LK’s Q1 revenues of $71.3 million, LK is currently trading at 16.8x 2019 revenues. In comparison, Starbucks (SBUX) currently trades at just 3.7x 2019 projected revenues of $26.2 billion. Quite plainly, LK is not cheap and would need to grow its revenues by 100% each year for the next two years to reach SBUX’s price to sales ratio.
The good news is China’s coffee consumption is expected to double in the next two years. However LK’s annualized revenues would need to quadruple to reach similar price to sales metric as Starbucks. Thus Luckin Coffee needs to expand to under-penetrated markets in China or take market share away from SBUX.
It’s quite possible Luckin Coffee can grow by expanding to new markets as well as take share away from Starbucks. As of the end of the first quarter, LK operated in just 28 Chinese cities, compared to Starbucks’s 141 cities. The company still has a lot of room to grow into markets already penetrated by Starbucks. By the end of this year, Luckin plans to surpass Starbucks in locations with 4850 stores compared to SBUX’s planned 4200. This is more than a doubling of its 2370 store count at the end of March 2019. Just from an increased footprint, LK could double its revenue run rate by the end of this year.
Revenues can also increase through higher average selling prices. While Luckin already sells its coffee at a lower 25 RMB (about $3.5 USD) per cup price compared to 35 RMB (about $5 USD) for Starbucks, its revenues generated per cup delivered is currently far less. This is due to aggressive promotions to attract new customers.
For example, to order at Luckin Coffee customers need to download their mobile app since the company does not accept any cash. New app customers get a free beverage. In addition, ongoing promotions include buy 2, get 1 free, and buy 5, get 5 free. Promotions change based on a customer’s ordering habits which the company can track through the mobile app and customer database. This is a huge advantage over Starbucks that still currently operates primarily as a typical brick and mortar coffee store. It may shock many consumers in the US, but mobile payment is widespread in China and many retailers do not even accept cash. Starbucks can easily adapt but it’s surprising they haven’t already despite doing business in China for 20 years.
From LK’s segmented revenue figures and beverage cups served, in Q1 2019 the company generated 361 million RMB and served 39.2 million cups, or about 9.2 RMB per cup ($1.33 USD at today’s exchange rate). This is far below Luckin’s 25 RMB average menu prices due to the promotions they periodically offer customers. This is also the main reason for the company’s scary headline losses. In Q1 2019, Luckin posted $71.3 million in revenues but $83.2 million in losses. This alone should scare away most casual investors.
However if we assume at some point after Luckin Coffee has attracted a loyal customer base and increased its brand recognition, promotions would decrease. In a theoretical example, if we assumed they sold at their menu prices in Q1, revenues would have been 1.3 billion RMB and as a result the company would have posted a net income of 202 million RMB (assuming PRC 25% uniform tax rate). This translates to $29.3 USD in net income or $0.12 in EPS. LK’s forward PE would be 43 if this theoretical quarterly EPS was annualized. It should be very clear that LK could operate and be fairly profitable if the company settled on selling coffee at menu prices without discounting which would still be on average 28% lower than Starbucks’s menu prices. Perhaps due to these potential profitable operating metrics was what led large reputable firms like BlackRock to invest in the company.
It’s likely for the rest of this year and even through most of next year, Luckin will remain extremely aggressive in attracting new customers. As a result, the company would unlikely post any profits for at least the next 2-3 quarters or more, dependent entirely on their promotion rates. While the company’s extreme discounting may discourage some investors, I believe it is critical because Luckin is starting at a huge disadvantage to its main competitor Starbucks.
I’m sure this may be a big surprise to many Americans, but the Chinese consumer views American products extremely favorably. American products are viewed as higher quality premium products and Chinese consumers who use American products are viewed higher in social circles. If friends or businessmen want to meet for coffee, the vast majority would not even consider Luckin Coffee at this point in time. In informal street polling, Luckin Coffee was viewed by many as an inferior product/brand. However in blind taste tests, Luckin Coffee actually rated higher than Starbucks. From my research, Western coffee drinkers who had experience with Luckin Coffee also tended to agree their coffee was comparable if not better than Starbucks.
For this reason, it is critical for Luckin to promote aggressively to change Chinese consumer opinions. Based on a 54% customer retention rate in 2018, they appear to be succeeding. This rate may not appear high to some, but it is actually high considering those who tried their products for the first time were getting a free product. There might be customers who were not even coffee drinkers but tried Luckin Coffee just because it was free. Another metric showing success is their new customer acquisition costs which dropped from 103.5 RMB to 16.9 RMB in just one year. Adding a new potential repeat customer for less than the price of a non-discounted cup of coffee is a very attractive investment.
The trade situation got exponentially worse last week after President Trump signed an executive order blacklisting Chinese telecom providers, namely targeting Huawei. While the stock market in the US mostly shrugged off this news and Wall Street analysts downplayed the escalation of the trade war, the US targeting specific Chinese companies should be a massive concern for any US investors holding companies that have exposure to China. What happened with the Korean boycotts could easily be repeated with US brands and products as the trade war directly impacts the Chinese consumer’s pocket, unlike the Korean THAAD issue which was merely political. For these reasons, I wrote about how Starbucks was especially vulnerable.
In conclusion, there’s still a lot of execution risks for Luckin Coffee. It’s still a new company and for the foreseeable future will likely continue to post large headline losses. Valuations today are not cheap either and the company would need to grow close to 100% annually for the next couple of years to grow into current valuations at the company’s current operating metric. If the company can continue to build its brand and attract new customers to a point where large promotions are no longer necessary to maintain its sales, Luckin could easily post earnings that justify its $17 IPO pricing. If US China trade tensions push LK shares back to or below its IPO pricing, it might be worth a gamble for growth oriented investors with a two plus year time horizon.
Disclosure:I am/we are short SBUX.I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Uber Technologies Inc. (UBER) has shown a quite disappointing performance after its IPO so far. Notably, that is despite the initial price having been lowered already. The stock could reclaim some lost ground following news that the U.S. National Labor Relations Board’s general counsel takes the position that participants in the gig economy (such as Uber drivers) are legally contractors, not workers, thus federal protections do not apply to them. Nonetheless the shares still trade a good deal below the IPO price.
As readers might remember I am of the opinion, that successful IPOs are a matter of perspective. Nonetheless, the weak performance is of course disappointing for every investor in the company, but of course the more of Uber one owner the bigger the problem. And there is one particular player who is facing the biggest problem here: Softbank Group Corp.’s (OTCPK:SFTBF;OTCPK:SFTBY) Vision Fund.
Uber’s Importance For The Vision Fund
According to SEC documents, SoftBank’s Vision Fund owns 12.8 percent of Uber post-IPO. This makes it the largest shareholder. It reportedly purchased its stake in (16.3 percent pre IPO) for a combined sum of above $8.25 billion ($1.25 billion of which in the form of newly issued equity at a valuation of $70 billion; the remainder via a tender offer to existing shareholders at a lower valuation). Thus the fund invested about 9 percent of its overall capital of $91.7 billion (yes, despite the usual media coverage the Vision Fund does not have an actual volume of 100 billion; more on the reason later) in Uber alone. Based on Uber’s market capitalization that still means that the Vision Fund was able to net some gains, thanks to the discounted valuation of the tender offer. Nonetheless it is hard to imagine that this meets the expectations of the investors in the fund (the largest among them being state controlled entities from Saudi Arabia and the UAE).
If the Vision Fund’s performance fails to keep up with expectations, I imagine it would negatively impact the interest in further such vehicles that SoftBank is already planning to launch. On top of that one should not forget that SoftBank itself invested considerable amounts – $28.1 billion, precisely speaking, although not all of it in cash- into the Vision Fund as well.
As I have previously written, I expect SoftBank to increase the importance of those kind of funds going forward as it transforms into more of an investment company. Thus the risk from its bet on Uber would also increase. And notably, the Vision Fund also invested $1.5 billion in Grab, another ride hailing company. So more of a tenth of the funds capital has been invested in this business model. Inevitably this means that if it does not work out, it would be a major brake pad to the fund’s performance.
Delta Fund: $6 Billion More Of Ride Hailing
The ride hailing bet seems already risky enough considering the exposure the Vision Fund has to the business model but it does not stop there for SoftBank. Remember the thing about the Vision Fund in fact not being a 100-billion-dollar fund? As promised above I will tell you the reason now. There is a second fund going by the name of “Delta Fund” which owns an investment in Didi Chuxing, the leading ride hailing company in China. The Delta Fund (which has a volume of $6 billion with SoftBank accounting for $4.4 billion) was set up to invest without using Saudi money, as Saudis apparently are reluctant to fund direct competitors of Uber in which they separately own a considerable stake of 4.3 percent (5.3 percent pre-IPO) through the Public Investment Fund.
So all in all SoftBank amassed quite some exposure to ride hailing. After the Uber IPO it seems like the perspective (at least in the nearer term) has dimmed by good portion for this important sector; especially considering that also Uber’s only listed peer Lyft (LYFT) is far from being a story of stock market success.
This all would be not to small of a risk in and of itself, but it is not all there is. Besides Uber there is another relatively young company with a high valuation but without profits on which SoftBank has bet several billions of dollars: WeWork. Please note: the company renamed itself “The We Company”. I will however in this piece refer to it as “WeWork” as I do believe that this is still the name under which the majority of readers will know the company as of the time of writing.
In the last round of funding SoftBank invested considerably less – $2 billion instead of up to as much as $16 billion- in WeWork than initially had been planned. Thats on top of the $8.5 billion it already had invested, of course. It seems to be the common understanding that the reason for this reduction lies less with Son losing faith in the company than with SoftBank feeling pressure from Vision Fund investors opposed to the idea of having that much of exposure to a single, loss making real estate company. SoftBank conducted the latest investment in WeWork on the holding level and not via the Vision fund.
Despite the massive scale back in its contribution, SoftBank still is by far the largest investor in WeWork. Thus it would also have the biggest exposure to any fallout from another disappointing IPO (of course it could also emerge as the biggest winner of a successful IPO). The moment of truth might be not that far away after all. WeWork could go public as early as this year. The company already filed documents with the SEC in confidentiality.
While they have vastly different business models, WeWork and Uber share a major weakness which may very well could (in the case of the latter already has) negatively impact the IPO. Just like Uber, WeWork is far from being profitable. On the contrary: the company reported losses ($1.93 billion) surpassing the size of its revenue ($1.82 billion) in 2018. Notably, that is a -slightly- bigger loss than Uber’s $1.8 billion at only a fraction of Uber’s revenue ($11.3 billion). This is not exactly an encouraging picture from my point of view.
WeWork’s business model has yet to prove that it is able to generate profits. Yes, WeWork reports a “community adjusted EBITDA” of $467.1 million. But if you adjust for enough costs (as in the case of WeWork marketing, development, design and so on), each and every business in the world could probably be profitable by that measure. Another concern is wether the business model is robust enough to withstand an economic downturn as WeWork leases space long term to rent it out short term. Currently, WeWork is in the process of launching a $3 billion fund to be called ARK which will serve the purpose of buying suitable real estate and renting it back to the company. As a recent Bloomberg article puts it, “WeWork wants to become its own landlord.” If however WeWork was to purchase real estate on a large scale, I would have to ask myself the question why not to value it more like a office REIT than the innovative technology company that itself and SoftBank seem to consider it. On the other hand I will not contest that this would still be a step forward from the company renting spaces from its CEO – a practice that probably would have to stop anyway if and once it was to go public.
All in all, I am not convinced that WeWork will be able to justify its valuation (let alone an even higher one) when going public. Furthermore, the fact that investors pressured SoftBank to commit far less fresh capital to the company than it had planned, shows that investors might not be willing to fund every ambitious plan of Mr. Son’s going forward.
Uber’s IPO and recent performance underline that even in this day and age of low interest rates and excess capital there are limits to what investors are willing to pay for loss making companies regardless of growth, as long as there is no clearly visible path towards profitability. Investments in that kind of companies however account for a considerable part of the portfolio of SoftBank’s Vision Fund. Lyft sharing the same fate clearly proves that this is not a problem exclusive to Uber.
Now WeWork will probably be the next big IPO of a heavily SoftBank backed company to have an eye on. If it takes a similar direction as Uber -which I do not deem unlikely- it would raise serious questions about SoftBank’s approach and could negatively impact the willingness of investors to commit further billions to new Vision Funds. Therefore I believe that Uber should be a warning signal not only to investors in ride hailing companies but also for those in other start ups with similar financials. And SoftBank fits into both those categories.
Please do not get me wrong, I am not at all saying that SoftBank may not be hugely successful with its strategy. I am merely warning that just like the potential upside, the downside risk is significant as well. SoftBank is a risky stock and should be handled accordingly.
Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: All research contained in this article was done with utmost care. However, I cannot guarantee accuracy. Every reader is advised to conduct his own due diligence and research.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
The Intellectual Property Owners Association (IPO) will offer a one-hour webinar entitled “PTAB Discretion: Exploring the New Metes and Boundaries” on May 23, 2019 from 2:00 to 3:00 pm (ET). Orion Armon of Cooley LLP, Kirby Lee of Ecolab, and Vice Chief Judge Scott Weidenfeller of the U.S. Patent and Trademark Office Patent Trial and Appeal Board will explore the scope and impact of recent important PTAB precedential opinions, as well as the decisions that have been designated “informative.” Topics to be addressed by the panel will include:
• Now binding cases regarding follow-on petitions, where the same patent is challenged multiple times by the same petitioner or by a series of petitioners • PTAB discretion regarding first-filed petitions • Same party issue joinder and real-party-in-interest issues as articulated in Proppant Express Investments, LLC v. Oren Techs., LLC • PTAB discretion to deny institution • Details on Revised Standard Operating Procedure 2 (“SOP2”) changes to procedures
The registration fee for the webinar is $135 (government and academic rates are available upon request). Those interested in registering for the webinar can do so here.
COLUMBUS, Ohio, May 17, 2019 (GLOBE NEWSWIRE via COMTEX) — Safe Auto Insurance Group, Inc. (“Safe Auto”) today announced that it has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) relating to a proposed initial public offering of its common shares. The number of shares to be offered and the price range for the proposed offering have not yet been determined. Safe Auto has applied to list its common shares on the Nasdaq Global Select Market under the ticker symbol “SAIG”.
BofA Merrill Lynch and Deutsche Bank Securities will act as book-running managers for the offering. Keefe, Bruyette & Woods, A Stifel Company; Sandler O’Neill + Partners, L.P.; and Dowling & Partners Securities, LLC will serve as co-managers.
The offering will be made only by means of a prospectus. Copies of the preliminary prospectus relating to this offering, when available, may be obtained from BofA Merrill Lynch, Attention: Prospectus Department, NC1-004-03-43, 200, 200 North College Street, 3rd Floor, Charlotte, NC 28255-0001, by email to firstname.lastname@example.org; or Deutsche Bank Securities Inc., Attention: Prospectus Group, 60 Wall Street, New York, NY 10005-2836, by email to email@example.com, or by telephone at (800) 503-4611.
A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or the solicitation of an offer to buy these securities, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
Ronald H. Davies
(C) Copyright 2019 GlobeNewswire, Inc. All rights reserved.
Last September, Uber’s top executives were pitched by some of Wall Street’s biggest banks, Morgan Stanley and Goldman Sachs.
The bankers’ presentations calculated Uber’s valuation almost identically, hovering around one particular number: US$120 billion ($183.9b).
That was the figure the bankers said they could convince investors Uber was worth when it listed its shares on the stock market, according to three people with knowledge of the talks.
Uber’s chief executive, Dara Khosrowshahi, and chief financial officer, Nelson Chai, listened and discussed the presentations, these people said. Then they hired Morgan Stanley as lead underwriter, along with Goldman Sachs and others,to take the company public — and to effectively make the US$120b valuation a reality.
Nine months later, Uber is worth about half that figure. The ride-hailing firm went public last week at US$45 a share and has since dropped to around US$43, pegging Uber’s market capitalisation at US$72b — and officially crowning it as the stock market debut that lost more in dollar terms than any other American initial public offering since 1975.
How Uber’s offering turned into what some are now openly calling a “train wreck” began with the US$120b number that the bankers floated. The figure leaked last year, whipping up a frenzy over how Uber could soon become the biggest American company to list on an American stock exchange — larger even than Facebook, which went public in 2012 at a whopping US$104b valuation.
But for Khosrowshahi and Chai, the US$120b number turned Uber’s IPO process into an exercise in managing expectations. Some large investors who already owned Uber shares at cheaper prices pushed back against buying more of the stock at such a lofty number, said people familiar with the matter.
Their appetite for Uber was dampened further by the company’s deep losses and slowing growth in regions like Latin America. And Uber had to contend with unforeseen factors, including fraying trade talks with China that spooked the stock market in the same week that the company decided to go public.
The result has created a host of pointed questions for all involved in Uber’s IPO, from Khosrowshahi and Chai to the lead underwriters at Morgan Stanley, Goldman Sachs and Bank of America. While Uber raised US$8.1b from its offering and reaped billions of dollars in returns for its early investors and founders, what should have been a climactic moment for a transportation colossus instead became an embarrassment.
The extent of the fallout may not be clear for a while, and it is too early to judge how Uber will ultimately fare in the public markets. But as many other tech-related companies aim to go public this year, including the food-delivery company Postmates and the real estate firm WeWork, they will have to contend with whether Uber has squelched what had been a red-hot IPO market.
“The US$69b market cap Uber had when the market closed today is a new reality,” said Shawn Carolan, partner at Menlo Ventures, which invested early in the company. But he added that Uber’s executives now had “the opportunity to show us what they can do.”
This account of Uber’s IPO was based on interviews with a dozen people involved in or briefed on the process. Many asked to remain anonymous because they were not authorised to speak publicly. Representatives from Uber, Morgan Stanley and Goldman Sachs declined to comment.
For years, Uber was an investor darling. As a privately held company, it gorged on capital from venture capital firms like Benchmark and GV, mutual fund firms like Fidelity Investments, and companies like SoftBank. Its private valuation shot up from US$60 million in 2011 to US$76b by August 2018.
Khosrowshahi, who became CEO in late 2017, was recruited partly to steer Uber through a successful IPO. Uber’s board agreed to pay him US$45m in cash and restricted stock — and set an unusually specific valuation target for an additional bonus. In a provision in Khosrowshahi’s compensation agreement, which was revealed in the company’s IPO prospectus, the board said that if Uber was valued in the public market at US$120b or more for at least three months in the next five years, he would receive a payout of US$80m to US$100m.
That provision set something of a goal for Uber, which the investment bankers who were hired to take the company public also gravitated toward. Within weeks of the banks’ presentations on the US$120b, that number leaked, leading to giddy speculation in Silicon Valley and on Wall Street that Uber’s offering could usher in a golden era of wealth.
By December, Uber’s IPO team was set. At the company, Chai, a former CFO at Merrill Lynch, was charged with leading the public offering. At Morgan Stanley, Michael Grimes, the firm’s star tech banker, was the point person, assisted by Kate Claassen, head of internet banking. Goldman Sachs’ team was led by Gregg Lemkau, Kim Posnett and David Ludwig. Bank of America’s was headed by Neil Kell and Ric Spencer.
Almost immediately, the setbacks began, starting with Uber’s business. Its once-meteoric growth rate was slowing as its geographic expansion appeared to be running out of room and as competitors continued springing up across the world.
One growth headache was connected to Uber’s biggest investor, SoftBank. The Japanese company, which has a US$100b Vision Fund that it uses to invest in all manner of companies, has poured capital into technology startups including Didi Chuxing, China’s biggest ride-hailing company, and 99, a transportation startup in Latin America.
In January 2018, Didi agreed to acquire 99. Both SoftBank and Didi also started directing funds toward pushing deeper into Latin America; SoftBank eventually created a US$5b fund earmarked specifically for investing in Latin American companies.
For Uber, the timing was terrible. The region was one of its most promising growth areas and its competition had ramped up. By this February, the damage in Latin America had begun showing up in Uber’s results in the form of slowing growth.
Uber’s food delivery business, UberEats, was under attack as well. SoftBank had sunk hundreds of millions of dollars into DoorDash, a food delivery company in the United States. More recently, SoftBank invested US$1b into Rappi, a food delivery company in Latin America. Uber had to spend more to battle those rivals.
SoftBank and Didi declined to comment. (Uber and Didi own shares in each other as well.)
The slowing growth led to lukewarm investor demand for Uber’s shares, according to two of the people involved in the matter. Some investors argued that Uber needed to price its offering lower, these people said.
Some investors were also resisting because they had earlier invested in Uber at cheaper prices. Since its founding in 2009, Uber has taken in more than US$10b from mutual fund firms, private equity investors and others, meaning that its stock was already widely held among those institutions that traditionally buy shares in an IPO. So the IPO essentially became an exercise in getting existing investors to buy more shares — a tough sell, especially at a higher price.
In March, another problem cropped up. Uber’s rival in North America, Lyft, went public and promptly fell below its offering price on its second day of trading. Investors appeared skeptical about whether Lyft could make money, setting a troublesome precedent for Uber.
By the time Uber made its IPO prospectus available in April, it had already told some existing investors that its offering could value it at up to US$100b — down from the initial US$120b.
Inside Uber, two people familiar with the deliberations said the company’s board was also not fully briefed on how Khosrowshahi and other executives planned to pitch the firm to investors in what is known as a “roadshow.” Only a smaller group of board members, who were part of a pricing committee — including Khosrowshahi; Ronald Sugar, who is also Uber’s chairman; and David Trujillo of TPG — focused on the IPO, these people said.
Another person close to the board said that all board members were invited to attend pricing discussions and IPO event planning, and that all materials from the pricing committee were made available. Some members were more active than others, the person said.
In late April, Uber proposed a price range of US$44 to US$50 a share for its offering, putting its valuation at US$80b to US$91b, below the US$100b it had floated just a few weeks earlier.
The company soon hit other obstacles. President Donald Trump tweeted this month that he wanted to raise tariffs on US$200b of Chinese goods, unsettling global stock markets. The day before Uber priced its IPO, Lyft reported a US$1.14b loss for its first quarter, renewing questions about the health of ride-hailing businesses.
Uber’s executives, board and bankers discussed the final pricing of the stock sale on May 9. Several board members pushed for a price at the higher end of the US$44- to US$50-a-share range, said the people briefed on the situation.
But Morgan Stanley, Goldman Sachs and others agreed that it needed to be lower, they said. The list of orders from potential investors, known in Wall Street jargon as the “book,” showed that the most desirable investors — the big asset managers who were most likely to hold on to the shares, even in tough times — were interested only in the lower price.
The final price: US$45 a share.
That evening, Khosrowshahi and his management team gathered in New York at Daniel, a Michelin star restaurant a few blocks east of Central Park, at a “pricing dinner” hosted by Morgan Stanley. The mood was upbeat, according to two people familiar with the evening.
But the next morning, that mood had changed. Uber executives arrived at the New York Stock Exchange, where the company was listing its shares. Before the first trade, monitors that lined the exchange floor displayed how Uber’s stock was likely to fall — flashing up US$45, US$44, before finally opening at US$42. The chatter quieted.
The rest of the day was little better. Uber’s stock never rose close to its US$45 offering price. As the so-called stabilisation agent, charged with helping trading in Uber stock, Morgan Stanley made some moves to support the shares, according to people with knowledge of the matter. But by the end of the day, while the S&P 500 closed up, Uber’s stock remained down.
KUALA LUMPUR: HPMT Holdings Bhd, which manufactures and distributes cutting tools for metalworks, will raise RM42.3mil from its proposed listing on the Main Market of Bursa Malaysia.
Of the RM42.30mil, it planned to use RM34mil to purhase new machinery while RM2.90mil would be working capital.
HPMT launched its prospectus on Friday for the listing exercise which will involve 116.60 million shares at an offer price of 56 sen each. Upon listing, its capitalisation would be RM184mil.
Of the 116.6 million shares, it said 16.4 million shares would be offered to the public; 8.3 million to eligible directors and employees; 59 million to institutional and selected investors and 32.9 million to approved Bumiputera investors.
Hong Leong Investment Bank Bhd is the principal adviser, underwriter and placement agent for this listing exercise.
HPMT has an export market share of about 23.6% based on the export revenue of RM68.3mil in FYE2018, making HPMT among the prominent cutting tool manufacturers in Malaysia.
HPMT managing director Khoo Seng Giap said the company would use part of the IPO proceeds to buy machinery and raise the production cutting tools.
“The purchase of the new machinery will increase our production capacity by over 40% to 212,600 pieces (of cutting tools) monthly as at Dec 31, 2021 (from 148,200 pieces as at end-2018).
Postal Realty Trust, Inc. Prices Initial Public Offering
Postal Realty Trust, Inc. (NYSE: PSTL) (the “Company”), an internally
managed real estate investment trust that will own and manage properties
leased to the United States Postal Service, today announced that it has
priced its initial public offering of 4,500,000 shares of Class A common
stock at an initial public offering price of $17.00 per share. The
Company has granted the underwriters a 30-day option to purchase up to
an additional 675,000 shares of Class A common stock at the initial
public offering price, less underwriting discounts and commissions.
Settlement of the offering is expected to occur on May 17, 2019, subject
to customary closing conditions. The Class A common stock is expected to
begin trading on the New York Stock Exchange on May 15, 2019.
The Company intends to use the net proceeds received from the offering
as follows: (a) approximately $29.0 million to acquire properties in the
Company’s formation transactions; (b) approximately $31.7 million to
repay mortgage debt secured by certain of the Company’s initial
properties, and (c) the remainder for general corporate purposes,
including working capital, future acquisitions, transfer taxes and,
potentially, paying distributions.
Stifel, Nicolaus & Company, Incorporated, Janney Montgomery Scott LLC,
BMO Capital Markets Corp. and Height Capital Markets, LLC are acting as
joint book-running managers for the offering. B. Riley FBR, Inc. and
D.A. Davidson & Co. are acting as co-managers for the offering.
A registration statement on Form S-11, including a prospectus, has been
declared effective by the U.S. Securities and Exchange Commission. This
press release shall not constitute an offer to sell or the solicitation
of an offer to buy, nor shall there be any sale of these securities in
any state or jurisdiction in which such offer, solicitation, or sale
would be unlawful prior to registration or qualification under the
securities laws of any such state or jurisdiction.
The offering is being made only by means of a prospectus. A copy of the
final prospectus relating to the offering may be obtained from Stifel,
Nicolaus & Company, Incorporated, One South Street, 15th Floor,
Baltimore, MD 21202, Attention: Syndicate Department, Fax: 443-224-1273,
or by email at SyndProspectus@stifel.com;
Janney Montgomery Scott LLC, 60 State Street, Boston, MA 02109,
Attention: Equity Capital Markets Group, or email firstname.lastname@example.org;
BMO Capital Markets Corp., Attention: Syndicate Department, 3 Times
Square, 25th Floor, New York, New York 10036 or by telephone at (800)
414-3627 or by email at email@example.com;
and Height Capital Markets, LLC at 1775 Pennsylvania Ave. NW, 11th
Floor, Washington, DC, 20006, Attention: Investment Banking, or email firstname.lastname@example.org
or by telephone at (202) 836-8960.
About Postal Realty Trust, Inc.
The Company is an internally managed real estate investment trust that
will own and manage properties leased to the United States Postal
Service, or USPS. Upon completion of the offering and related formation
transactions, the Company will own and manage an initial portfolio of
271 postal properties located in 41 states comprising 871,843 net
leasable interior square feet, all of which are leased to the USPS, and
through its taxable REIT subsidiary will provide fee-based third party
property management services for an additional 404 postal properties
leased to the USPS and owned by family members of Andrew Spodek, the
Company’s chief executive officer, and their partners.
Forward-Looking and Cautionary Statements
This press release contains “forward-looking statements.”
Forward-looking statements include statements regarding the proposed
public offering and other statements identified by words such as
“could,” “may,” “might,” “will,” “likely,” “anticipates,” “intends,”
“plans,” “seeks,” “believes,” “estimates,” “expects,” “continues,”
“projects” and similar references to future periods, or by the inclusion
of forecasts or projections. Forward-looking statements, including
statements regarding the timing of settlement and the expected price
range for the use of proceeds of the initial public offering, are based
on the Company’s current expectations and assumptions regarding capital
market conditions the Company’s business, the economy and other future
conditions. Because forward-looking statements relate to the future, by
their nature, they are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict. As a result, the
Company’s actual results may differ materially from those contemplated
by the forward-looking statements. Important factors that could cause
actual results to differ materially from those in the forward-looking
statements include the USPS’s terminations or non-renewals of leases,
changes in demand for postal services delivered by the USPS, the
solvency and financial health of the USPS, competitive, financial market
and regulatory conditions, general real estate market conditions, the
Company’s competitive environment and other factors set forth under
“Risk Factors” in the Company’s registration statement on Form S-11, as
amended from time to time. Any forward-looking statement made in this
press release speaks only as of the date on which it is made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future developments or otherwise.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190515005484/en/
SOURCE: Postal Realty Trust, Inc.
Investor Relations and Media RelationsEmail: Investorrelations@postalrealtytrust.comPhone: 516-232-8900