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What is an IPO?
All companies have to start somewhere, and often, it involves having the founders invest a chunk of their own money in the hopes of eventually growing the business. But as small, private companies start to gain traction, many come to find that they need outside financing to continue growing, and therefore decide to go public. And that's where IPOs come in. An IPO, or initial public offering, is the process by which a privately held company begins selling stock to outside investors, thus becoming a public company. From that point on, the company can raise the capital it needs by selling shares, but it must also comply with a strict set of reporting guidelines. These days they often come with a lot of hype and there is a huge incentive to get the company float off successfully, which can sometimes result in shares falling soon after as existing investors look for the exit. Investors need to step away from the hype and excitement and look at the investment opportunity. Ask what is the IPO for, is it to raise funds to grow the business or an opportunity for founders and early investors to extract value? Why is the IPO now and not sooner or possibly later? Valuation, what price are you being offered shares at? Are they cheap enough to offer investors some exposure to growth in the company or priced too high that the opportunity to profit is lost? Most IPOs need to balance the interests of existing investors with those new investors so valuations can reflect a fair mid ground. But this often is influenced by short term market sentiment and excitement. Do your research and find out as much as you can about the business and its finances ahead of IPO.
Trainline, the travel platform selling rail and coach tickets has announced an initial public offering (IPO) and an intention to list on the stock exchange. The company, owned by US private equity group KKR, is looking for a valuation of £1.5bn. The platform sells ticket for 220 rail and coach carriers across 45 countries, principally in Europe but also in Asia. The Group has three business segments:
- UK Consumer – which sells rail and coach tickets for all UK rail and coach carriers to customers worldwide.
- International – which sells rail and coach tickets for carriers principally in Europe to customers worldwide.
- Trainline for Business (T4B) – Currently a UK-focused business which provides rail and coach booking solutions for small and medium enterprises, large corporate entities and travel management companies. Additionally, T4B provides a “white label”, online retail platform for many of the UK’s biggest rail carriers.
Clare Gilmartin, CEO of Trainline said: “Our aim is simple: to make rail and coach travel easier for millions of people, saving our customers money, time and hassle – and thereby encouraging more environmentally sustainable travel choices. I am especially proud of the team and culture we have created at Trainline and excited by the global growth opportunity that lies ahead for the business.” Trainline recorded revenue of £210m and net ticket sales of £3.2 billion in fiscal year 2019. Revenue grew at a compound annual growth rate (CAGR) of 18% for the period from FY 2016 to FY 2019, driven by net ticket sales growth at a 20% CAGR for the same period.
Watches of Switzerland
Watches of Switzerland said it planned to seek a market capitalisation of up to £660m in its upcoming initial public offering in London as it seeks to pay off some of its debt. The UK’s largest luxury watch retailer intends to sell shares in a range between 250-277p each, which would bring its value to between £610m and £660m. It plans to raise at least £200m, it said, which excludes a 10 per cent “greenshoe” option, a mechanism that would aim to bring in extra proceeds. Watches of Switzerland, which accounted for half of all Rolex timepieces sold in the UK in 2018, seeks a premium listing on the London Stock Exchange, comprising new and existing shares. The retailer has been expanding in recent years and entered the US market in late 2017. It has 21 stores there as well as its 125 UK outlets. Its pricing would bring it to 13 to 14 times the PE ratio on net income for April 2020 forecast at £47m. The group intends to use the net proceeds to reduce leverage to about £120m of net debt, it said. Apollo Global Management, which owns over 90 per cent of the company, would reduce its holding but retain a controlling stake. At least 25 per cent of the company’s shares would be freely traded under the proposal. The group generated sales of £746m in the 12 months to January 27. It held a 35 per cent share of the UK luxury watch market by total value of sales in 2018, and a 41 per cent share when brand-owned stores are excluded. The group said when it initially announced its plans to list that Barclays and Goldman Sachs International would act as joint global co-ordinators, bookrunners and sponsors, while BNP Paribas and Investec would act as joint bookrunners. Rothschild is acting as financial adviser.