Adnoc Drilling, the Middle East’s largest drilling company, has set the price for its listing at 2.30 dirhams per share, implying an equity value of $10 billion. The offering will represent 1.2 billion shares or 7.5% of the company. However, Adnoc Drilling has said that it may increase the amount of stock available.
The offering comes amid a push by Abu Dhabi to revive IPOs on its stock exchange. The ADX is offering a range of extra incentives, including promises to reduce or waive listing fees and flexibility on the minimum stake size needed for share sales.
Adnoc Drilling has also begun preparations for a potential IPO of its fertiliser joint venture Fertiglobe as sovereign wealth fund ADQ plans to list Abu Dhabi Ports by the end of the year.
The United Arab Emirates is the third-largest producer in the Organization of Petroleum Exporting Countries and has utilised its oil wealth to expand its economy. The UAE has diversified into tourism and developing global transport and trade hubs. However, these sectors suffered throughout 2020 as the covid-19 pandemic saw a substantial decline in international travel, blocked trade flows, and cut energy use.
Last month, China said it planned to strengthen the supervision of all companies listed offshore. This regulatory shift followed a cybersecurity investigation into ride-hailing giant DiDi just days after its US IPO in July.
Under China’s proposed rules, scrutiny of overseas IPO-found companies would be tightened by the Chinese securities regulator. The rules would also ban those that collect vast amounts of user’s data or create content that could potentially pose a security threat.
If they aim to list their shares outside of China, then internet firms would be asked to apply for review with the Cybersecurity Administration of China (CAC) of their own accord. The CAC would conduct the review alongside other relevant ministries and regulators if need be. After the CAC’s approval, companies would be allowed to apply to the securities regulator.
China’s plan comes amid several other proposals currently under consideration by regulators as the country tightens its grip on its internet platforms.
After disclosing that German rival Delivery Hero has taken a 5% stake in the company, food-delivery giant Deliveroo hit its highest share price since it floated on the stock market back in March. After announcing the news, shares in Deliveroo rose by as much as 10% to 360p in early trading on Monday.
Delivery Hero is a direct rival to Deliveroo, running a takeaway delivery service across Europe, Latina America, Asia, and the Middle East. The company formerly operated the Hungry House brand in the UK, but sold it on to Just Eat in 2017.
Niklas Oestberg, founder of Delivery Hero, turned to Twitter to say he had known Deliveroo founder Will Shu for many years and had huge respect for his business. Oestberg stated he had purchased the stake in Deliveroo because he believes the business was undervalued after being oversold at its IPO. In March, Deliveroo suffered a disastrous public market debut. Its shares slumped 30% on the first day of trade.
Whilst the news of Delivery Hero’s 5% stake in the company has boosted Deliveroo’s shares, Delivery Hero investors were not as impressed. Delivery Hero’s stock dropped 1.8% in Germany. The company is currently valued at €32 billion, whereas Deliveroo is currently worth an estimated $6 billion.
The digital lender has raised 2.6 trillion won ($2.3 billion) in its initial public offering (IPO), offering 65 million shares. Its shares opened up 37.7% from its IPO price of 39,000 won per share, continuing to surge to 68,000 won per share by late morning. At 30.4 trillion won, KakaoBank has secured top place amongst financial companies on the KOSPI index by market value.
The digital lender is successfully competing with established rivals by offering customers quick and straightforward financial services through its mobile app. As of March 2021, KakaoBank had 16.2 million customers and 13.4 million monthly active users.
KakaoBank’s stock market debut is South Korea’s largest IPO since Netmarble went public in 2017. Analysts predict a minimum of 20 trillion won will be raised in 2021.
SoftBank has seen total losses of around $4 billion on its Didi position and has also suffered from a decline in the valuation of Alibaba. Uber’s own Didi stake saw a $2 billion decline last week following the June debut of Didi’s American depositary shares as China’s officials planned fines against Didi amid a wider crackdown on US-listed Chinese companies.
SoftBank’s announcement comes just one week after Uber stock rose somewhat as the company’s trucking unit revealed plans to acquire shipping software company Transplace for approximately $2.25 billion. While shares in Uber are down by around 8%, Didi shares have dropped by 37% from their $14.44 closing price on the stock’s first day of trading. Since Didi’s US IPO, SoftBank has also seen its shares tumble.
SoftBack first invested in Uber back in 2018. The following year, SoftBank Vision Fund then invested an additional $333 million. In March of this year, Uber referred to SoftBank as a “large stockholder.”
Before floating on the Nasdaq Stock Exchange on Thursday, Robinhood priced shares at the low end of the $38 to $42 range. The trading platform sold 52.4 million shares, generating a profit of just under $2 billion. The company’s co-founders Vlad Tenev and Baiju Bhatt each sold around $50 million worth of stock.
Robinhood, which claims its mission is to “democratise” investing, has become a central gateway to the markets for first-time, and often young, investors. The trading platform offers equity, cryptocurrency and options trading, and cash management accounts. During the pandemic and the meme stock craze, the platform saw record trading levels.
Robinhood has an estimated 22.5 million funded accounts as of the second quarter of the year. In the first quarter of 2021, this figure stood at 18 million. The trading platform was last valued in September in the private markets at £11.7 billion. This latest valuation, following its IPO, marks a significant milestone for the company.
In its updated prospectus, Robinhood estimated revenue of $546 million to $574 million in the second quarter, a substantial increase from $244 million in the second quarter of 2020. Revenue soared 309% in the first quarter to $522 million, up from $128 million the year before.
Image by Andrew Neel from Pexels
On Monday, the trading platform revealed the details of its initial public offering in a stock market filing, preparing investors for one of the most highly anticipated IPOs of the year. The flotation follows a huge increase in young people signing up to the platform and beginning to trade shares throughout the covid-19 pandemic. The shares are expected to be priced at $38 to $42, the platform has said.
Robinhood, which claims its mission is to “democratise” investing, is a highly controversial platform. It was recently criticised for curbing trading in the middle of the surge in GameStop shares as it struggled to keep up with demand, and, in February, the company was sued following the suicide of a 20-year-old trader.
If Robinhood achieves its $35 billion valuation target, then the IPO will mark a threefold increase since September 2020 when the platform was valued at $11.7 billion. The company is estimated to have 22.5 million funded accounts, up from 18 million in the first quarter of this year, and expects to see second-quarter revenue for the year sit between $546 million and $574 million. This would be a 129% increase from the same period last year.
The buyout group, which holds around £23.5 billion of assets under management across equity and debt funds, is set to offer out around 25% of its shares with a further 15% expected to become available through an over-allotment option.
The company is seeking to sell approximately £300m worth of new shares, whilst also selling some shares from existing shareholders - paving the way to a valuation of £2 billion. The flotation signifies a rare arrival in the public markets for a private equity firm and will position Bridgepoint alongside fellow London-listed organisation, 3i Group.
Bridgepoint’s flotation comes amidst a flurry of private equity deals as buyout groups swoop to acquire companies that have fallen on hard times during the Covid-19 pandemic. However, in choosing to remain in London for the listing, Bridgepoint has placed itself as the latest significant arrival helping to bolster the capital’s financial reputation.
Building On A Record-Breaking Q1
Despite the challenges posed by both the Covid-19 pandemic and Brexit, the London Stock Exchange recorded its best start to the year for welcoming IPOs since 2007, despite not all flotations performing as well as initially expected, like in the case of Deliveroo.
Buoyed by prestigious listings from the takeaway food firm, consumer review platform Trustpilot, web security firm Darktrace, and many more smaller firms on the Alternative Investment Market (AIM) made the beginning of 2021 a boom period for London.
Image by Bloomberg
Financial services firm EY has found that 12 IPOs raised £5.2 billion on the LSE in Q1 of 2021, while another eight claimed £441 million on Aim - paving the way for the most lucrative opening quarter in 14 years.
Although Deliveroo’s much anticipated listing ended in disappointment due largely to shady perceptions on employee rights and an excessive valuation, London appears to have sidestepped Brexit uncertainty to retain its position as the place in Europe for private companies to go public.
“The UK has had the strongest opening quarter for IPOs for 14 years, with the markets successfully weathering the effects of Brexit and bouncing back from the stall in activity caused by the onset of the pandemic a year ago,” explained According to Scott McCubbin, partner at EY. “With an effective vaccine rollout under way, momentum and confidence in the UK IPO market should continue to build, but future growth may vary depending on the sector.”
Striking Amidst Favourable Market Conditions
In 2021, against the backdrop of the Covid-19 pandemic and Brexit, the London Stock Exchange ramped up its efforts to welcome companies looking to list domestically. In March, the UK Listing Review published its recommendations for reform of the Listing Rules of the LSE. The reforms were created as a means of boosting the attractiveness of the UK as a place to go public - particularly for new economy companies - whilst maintaining an appropriate level of investor protection.
The proposals within this recommendation included the relaxing of rules in relation to SPAC activity, remarketing the LSE’s standard listing segment, allowing companies with a dual class share structure to list on the premium segment of the stock exchange and reducing the free float requirements and allowing companies to use other measures to demonstrate liquidity.
These significant alterations come as the global IPO market is accelerating at a rapid pace, with record-breaking numbers for 2021 being returned for companies.
Image by Financial Times
Astoundingly, global IPO proceeds in 2021 have already surpassed 21 of the past 26 years in total. At a total of nearly $250 billion raised so far, there’s little doubt as to why London is pushing so hard to accommodate new customs.
This surge in new arrivals on the public market has been driven largely by strong performances among tech startups during the pandemic and a brand new wider investor base created through the stimulus packages governments offered during lockdowns.
“The pandemic supplied additional reasons for the retail investment market to grow. To support the economy, most countries adopted stimulating policies, which brought both the loan and deposit interest rates to historic lows,” explained Maxim Manturov, Head of Investment Research at Freedom Finance Europe. “As an alternative to low-rate deposits, many started investing their savings into stock markets, which posted significant gains last year despite the lockdown and the production slump.”
The Bid To Attract An Apple
The efforts of London to alter its listing requirements comes as the city looks to fill the gulf in tech giants on the FTSE 100 compared to its US counterparts. The UK doesn’t play host to stock market leaders like Microsoft, Facebook, Apple and Google, and subsequently misses out on stock market gains driven by these key players.
The absence of key organisations is another reason why the US is currently the world’s cheapest major stock market. Although the FTSE 100 index contains some big stocks based on old-economy fixtures like fossil fuels companies and financial institutions, the market is still around 10% below its pre-pandemic peak from last year - despite concerns surrounding both Brexit and Covid-19 clearing somewhat in 2021.
In comparison, the S&P 500 is up 22% from its pre-Covid-19 peak from last year, while the more technology oriented Nasdaq has rocketed by over 40%. Despite its sluggish performance, the arrivals of Bridgepoint’s IPO and other successes in the form of Darktrace have shown that the city is turning a corner in ramping up its appeal to companies both domestically and overseas. If the favourable listing conditions can continue, there’s no reason why London can’t outperform its pre-pandemic peak over the course of the year.
Following other big tech firms such as Baidu and Bilibili, Xpeng is the latest Chinese company to list on the Hong Kong stock exchange. The electric car manufacturer is already listed on Nasdaq and is rapidly becoming a strong rival to Tesla in China.
Xpeng raised HK$14 billion ($1.8 billion) in its initial public offering ahead of the start of trade on Wednesday. The company issued 85 million Class A ordinary shares at HK$165 ($21.20) each. Its shares traded approximately 1.8% higher on opening. The IPO comes as Chinese firms are put under pressure to list closer to home. Recently, Chinese transport company DiDi fell under scrutiny over data security when it listed overseas.
Xpeng’s performance has improved considerably over the years, having previously proposed, and been rejected for, a merger with another struggling electric car manufacturer Nio. In its US IPO last year, Xpeng raised $1.5 billion and in the fiscal year 2020, and delivered over 27,000 vehicles to consumers. If successful, Xpeng’s performance in Hong Kong could facilitate similar moves by other electric vehicles companies.
Two days after announcing a cybersecurity review of DiDi, China’s Cyberspace Administration ordered Chinese app stores to remove DiDi from the platforms entirely, claiming the company has severely violated regulations surrounding personal data. Regulators also requested that DiDi rectify all existing problems in line with national standards to protect personal data of DiDi’s many users.
On Friday, DiDi said it would fully cooperate with the government’s review. Aside from the suspension of new DiDi users, the company has insisted there will be no service interruptions for those already using the app. DiDi is not the only company to face tough crackdowns by Chinese regulators. Tencent, Alibaba, and JD.com are amongst others who have also been targeted. Action by the regulators aims to curb risk and prevent unfair labour practices.
The regulatory scrutiny surrounding DiDi follows its Wall Street debut, where the company raised $4.4 billion from investors in one of the biggest IPOs in recent memory. DiDi’s first day on the New York Stock Exchange drew to a close with a market capitalisation of approximately $75 billion, making the company’s president a new billionaire.
Couchbase
Couchbase is a database software firm that helps corporate customers like eBay, Cisco Systems, Intuit, and PayPal Holdings manage databases on web and mobile application through its NoSQL cloud-based service. Founded in 2011, the company has registered for a stock market debut that is expected to come in June 2021.
Couchbase has seen strong growth over the past year, specifically since the start of the pandemic as demand for data storage and processing soared due to the adoption of remote working. Its growth has also meant it has had to enhance its portfolio. In June 2020, Couchbase debuted a managed version of its database that runs on Amazon Web Service. More recently, it is added support for Microsoft Azure.
Since its inception, the company has raised $251million in venture investments, with backers including GPI Capital, North Bridge Venture Partners and Accel. Its popularity among investors comes as no surprise with around a third of the Fortune 100 using its database to power their business applications.
Snowflake, a rival cloud-based data-warehousing company, went public last September, reaching a valuation of $33 billion, making it the largest software IPO in history. This means Couchbase’s IPO will be a pivotal moment in the company’s history and for the industry in general.
Robinhood
Founded in 2013, Robinhood offers commission-free trading through its website and mobile app, while also allowing users to buy and sell cryptocurrencies. The rise of the trading platform has been extraordinary. Between 2013 – 2020, the platform gained 13 million users, averaging a total of one million new users per year. However, in 2021, its user base skyrocketed with an additional 6 million users joining the trading platform in the first two months of the year.
The company’s recent growth in popularity has been down to young retail investors, predominantly millennials, who have taken a liking to the app’s slick user and customer experience. Its popularity isn’t just with young investors; a plethora of companies have also invested in the platform. In February 2021, Robinhood announced that it had raised a further $3.4 billion in an investment round featuring Ribbit Capital, ICONIQ Capital, Andreessen Horowitz, Sequoia, Index Ventures, and NEA.
However, while Robinhood has expanded rapidly over the last year, it hasn’t come without some public backlash and regulatory scrutiny. Regulators in Massachusetts are looking to ban its citizens from trading on the app, claiming that Robinhood’s gamified investing platform caused its customers to take on too much risk, thereby failing the state’s fiduciary rules.
Despite this, Robinhood generated $682 million in payment-for-order-flow revenue in 2020, which represents a 514% increase year-on-year. It’s reported that the company’s IPO valuation could be around $50 billion.
The Fresh Market
The Fresh Market is a retail chain that supplies high-quality food products. The grocer operates in many competitive South-eastern markets, with conventional grocers as well as speciality chains and discounters upgrading their assortment of natural and organic products. In March 2016, Fresh Market was acquired from Apollo Global, a private investment company, at $1.36 billion.
The company’s performance has improved in the years since Apollo Global Management took it private, and the pandemic has accelerated the chain’s rejuvenation and growth. As of late October 2020, Fresh Market had around $187 million in unrestricted cash and it recorded sales of $1.7 billion over the 12 months ending 25th October. The company also saw sales rise by an estimated 20% in 2020, which was for a range of factors including a change in pricing, investment in perishables, expansion of home deliveries, a pickup service, and a rise in pantry loading - as consumers increased transaction sizes while lowering the number of trips to the store during the COVID-19 pandemic.
The number of shares to be offered and the price range for the proposed offering have not yet been determined. However, Fresh Market expects to use the proceeds of the offering for general corporate purposes, which may include the repayment of indebtedness.
Databricks
Databricks is a startup company that provides software for fast data processing and analysis preparation and was founded in 2013 by the creators of Apache Spark, MLflow and Delta Lake.
2020 was a spectacular year for tech companies across the globe as many transitioned and migrated online – with Databricks also benefitting. The company claims to have passed $425 million in annual recurring revenue, a year-over-year growth of more than 75%. This is no surprise given that over 5,000 companies including CVS Health, Comcast, Condé Nast, Nationwide, and 40% of the Fortune 500 companies, currently rely on Databricks’ unified data platform for analytics, machine learning and data engineering.
Databricks’ future potential and expansion has not gone unnoticed with many prestigious and successful money managers and venture capitalists having already invested heavily in the company. Databricks has had seven major rounds of funding since its founding and has raised a total of $1.9 billion from a total of 28 investors. The company’s latest round of Series G late-stage venture financing raised a total of $1 billion from 23 investors. These investments are for good reason; powered on the cloud by Delta Lake, the Databricks Lakehouse platform allows companies of any size to efficiently consolidate all of their data in one place.
Databricks’ value during the IPO is not confirmed but it is speculated to reach $35 - $50 billion according to the Business Times.
Couchbase, Robinhood, The Fresh Market and Databricks are all key players within their respected sectors. While it’s important for an organisation to have the backing of investors and have a strong customer base, this doesn’t always mean their IPO will skyrocket, as we saw with the Deliveroo IPO. All four companies provide a unique offering that sets them apart from the competition and that’s why it’s worth keeping them on your radar for June.
So, where did it all go wrong for the Deliveroo IPO? What caused Deliveroo’s underwhelming stock market debut? And what does this mean for the London Stock Exchange as a whole? Below, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, dives deeper into Deliveroo’s shares plunge, the reasons behind this downfall and the future outlook for the now-public company.
Why did investors turn down the Deliveroo IPO?
There are three core reasons that investors chose not to invest in the Deliveroo IPO on its trading debut. Firstly, the stock has a dual-class structure, which means the CEO still has control over the business. Secondly, employee categorisation and the conflict regarding the staff conditions for delivery workers. And finally, higher US Treasury bond yields, which cause rotation of rising stocks, the latter two being local issues.
As for the stock’s dual-class structure, this had a clear negative impact on attracting domestic and large-scale investors to the Deliveroo IPO. For example, the likes of Aberdeen Standard Life, Aviva, Legal & General Investment Management and M&G opted out of this particular investment due to concerns overpower. With Deliveroo CEO, Will Shu, retaining 57% of voting rights, there was a clear imbalance of control between shareholders and management.[1] Ultimately, shareholders feared this structure would leave them with little to no protection, as the company did not qualify for a premium listing.
Following on from this, employee categorisation and the growing conflict over workers’ rights are other key factors that led to the failure of Deliveroo’s trading debut. Previously, Uber faced a similar issue regarding employee categorisation. The UK Supreme Court acknowledged Uber drivers as employees that are eligible for minimum wages, paid vacation and retirement pension. This same ruling proves critical for Deliveroo as, on the one hand, making riders full employees is likely to prevent the company from breaking even as soon as possible and could even impact its ability to continue operating. While on the other hand, big investors are shunning the tech giant over its outlook on workers’ rights.
There is also the social media backlash to consider, with many people posting across their various social media platforms about large-scale investors refraining from taking part in the Deliveroo IPO. Alongside this, there was the mass uproar around the delivery workers' protests and corporate governance, which led to a negative news background ahead of the IPO and a significant decrease in its initial target valuation. The growing power of social media is definitely something for companies to watch out for in the coming years, as most people carry mobile devices and check their media feeds 24/7.
Lastly, US Treasury bond yields rose in March, which led to growth stock rotation and a significant decrease in Deliveroo share prices. This shortfall, unfortunately, occurred at a very problematic time and, in turn, meant investors were less likely to invest in the Deliveroo IPO on its trading debut. In fact, many of Deliveroo’s key competitors suffered a loss due to higher US Treasury bond yields, with DoorDash shares losing as much as 23% since the beginning of March.
The impact on the London Stock Exchange
When looking at the bigger picture, the overall impact of Deliveroo’s trading debut on the UK stock market is pretty insignificant. The London Stock Exchange is still working on easing listing regulations and attracting fast-growth tech companies and ultimately seems pretty unphased by this unfortunate setback. For example, Darktrace, a cybersecurity startup, heads for the FTSE with a £3 billion IPO plan on the London Stock Exchange, and there is a long list of exciting IPOs set to follow in its footsteps.[2]
Analysts also report that Deliveroo's bad start does not have to do much with the UK stock market itself. Instead, the reasons are primarily internal issues, namely the employee categorisation issue. Therefore, Deliveroo's failure is very unlikely to have a huge impact on overall listings going forward, but the London Stock Exchange does need to ensure the next tech IPO to hit the market makes everyone forget about Deliveroo’s underwhelming start.
The future for Deliveroo
While a 30% fall in shares is, of course, not the worst start in stock market history, it is one of the weakest in the London Stock Exchange over the last decade. That being said, the company still managed to raise a substantial amount from retail investors and in Q1 2021, the uptrend was there to stay, with 71 million orders against 33 million last year, and the overall transaction value rising by 130% YoY to reach £1.65 billion.[3]
It is also important to note that the volatility faced by Deliveroo is likely to be temporary, as fundamentally the tech giant continues to reduce costs and is faced with huge growth potential in the online food delivery sector. On top of this, there have been many cases in recent history where companies, especially tech firms, have fallen short at the first hurdle, only to perform relatively well in the longer term. As such, while its trading debut is most definitely not something to shout about, the future for Deliveroo is likely to be bright if it learns from its past mistakes, acts strategically and allows room for rapid growth.
[1] https://www.ft.com/content/72de7a53-e7af-4c6b-af0f-cfd1f8fcbdf5 [2] https://uk.finance.yahoo.com/news/darktrace-ipo-intention-to-list-london-stock-exchange-ftse-tech-uk-090033327.html [3] https://equalocean.com/briefing/20210416230040264
