IPOs Boom Amid a Stock Surge
A Slew of Companies File for IPOs
The initial public offering market is booming after taking a back seat to SPAC deals in 2020. This week alone has already seen 18 companies file for IPOs with the Securities and Exchange Commission. They run the gamut from Chinese ride-hailing startup DiDi Global to cybersecurity company SentinelOne. The last time this many companies filed for an IPO in a week was in 2004.
The surge of public debuts is because companies want to take advantage of a robust stock market and because the second quarter is coming to a close. If they wait until the third quarter begins, firms have to file updated financials.
IPO Market Expected to Stay Busy
The IPO market has been strong throughout 2021 with 213 companies going public in the first six months, raising more than $70 billion. This activity is reminiscent of the dotcom boom from 1996 to 2000, and is happening despite competition from SPACs for investors’ attention.
Currently there are about 87 companies aiming to raise a total of over $20 billion through IPOs. There is also a bevy of private companies that have not yet filed with the SEC but are expected to do so soon. That is driving optimism that the IPO market’s strength will continue at least through the end of the year.
Stocks Making a Comeback in 2021
The surge in IPOs comes as the stock market is seeing growth, with the S&P 500 up 14% so far this year. For context, the S&P 500 was down 4% at this point last year. While investors piled into stay-at-home stocks like Netflix (NFLX) and Amazon (AMZN) during the pandemic, their interest is shifting back to industrials like Marathon Oil (MRO), which is up more than 100% thanks to rising oil prices, and Nucor (NUE) which is up 80% because of surging steel prices.
As the year progresses, investors will need to pick and choose their investment strategies. For example, oil may be a good bet now, but it is not clear if trends in oil prices will continue. Amazon may be too pricey for some investors now, but its fundamentals could catch up with its stock price. It is likely that as consumer habits change and the economy recovers from the pandemic, the stock market will be in for some twists and turns in the second half of the year.
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Chinese Ride-Hailing Giant Makes its US Debut
DiDi Begins Trading in the US
DiDi (DIDI) a Chinese ride-hailing company, went public yesterday, selling shares in a deal that values it above $67 billion. Shares priced at $14 each ahead of the IPO. DiDi raised $4.4 billion, making it the second-largest US listing by a Chinese company ever. Alibaba (BABA), the Chinese ecommerce giant, raised $25 billion in its IPO in 2014.
Many Chinese companies are pursuing dual listings in the US and Hong Kong recently. Chinese companies raised $12 billion via US listings in 2020, and have raised nearly $8 billion so far in 2021.
China Tech Companies Face Strict Regulations at Home
Chinese companies are facing increased regulation at home and abroad. Chinese authorities are cracking down on the technology sector in particular.
This spring, DiDi was among a group of 34 countries told by the State Administration for Market Regulation to rein in anti-competitive practices and conduct internal inspections of operations. DiDi is currently being investigated by SAMR over allegations that it used its position to tamp down smaller rivals. The firm is the leading ride-hailing company in China with 377 million annual active users. It counts Apple (AAPL), Alibaba (BABA), and other large companies as investors.
DiDi Steps on the Gas
DiDi’s public debut came three business days after the company launched its roadshow with investors. To expedite the process, DiDi held round-the-clock virtual meetings with investors. Executives sold investors on DiDi’s size and growth potential, noting that 70% of China’s population will live in cities by 2030. Few of them will own cars, which will increase demand for DiDi’s services.
To speed up the road show, DiDi also lined up investors ahead of time for one-third of the IPO allotment. It also priced its IPO prudently, which ultimately led to it being oversubscribed. The IPO market is booming, with DiDi being one of the larger debuts this year.
Ampex Acquires Bakery Chain, Au Bon Pain
Panera Sells Au Bon Pain
Ampex Brands, a restaurant operator, is buying Au Bon Pain, the bakery chain, from Panera Bread (PNRA). The deal will preserve the Au Bon Pain brand, which Panera was in the process of phasing out. Through the deal, Ampex Brands will receive about $60 million in assets.
The transaction underscores the power of franchise companies in the restaurant industry. In the past, most franchisees owned one or two stores, but today some of them own hundreds of restaurant locations across different chains. In fact, some franchisees drive more sales than the parent companies of the restaurant brands they operate. Ampex owns more than 400 restaurants and convenience stores across the country.
Ampex Plans to Grow Au Bon Pain Brand
Terms of the Ampex deal were not disclosed but the company said the deal includes the assets and franchise rights for 131 more Au Bon Pain locations. Ampex plans to start opening additional Au Bon Pain locations, even though transit hubs and business centers still have not returned to normal following the pandemic. Many Au Bon Pains are located in airports, train stations, and business hubs. The company is betting that once US consumers return to pre-pandemic habits, demand for its products will rise.
At its height, Au Bon Pain had 300 locations, but because of increased competition and other factors, that number has been reduced to 171.
Franchisees Gain Power
Franchisees like Ampex have been able to weather the pandemic better than independent restaurant operators for several reasons. They have more cash in the bank and they were able to quickly adapt to new conditions through strategies like offering take-out.
Franchisees like Ampex as well as Carrols Restaurants (TAST) and Flynn Restaurant Group (RSTGF) are gaining more power in negotiations with restaurant parent companies. This is enabling them to push back on certain mandates and call for new products. For example, McDonald’s (MCD) launched a new chicken sandwich earlier this year in response to requests from franchisees. As the restaurant industry comes out of the pandemic, power dynamics are shifting between parent companies and franchisees.