EVs Raise Cash

EV makers Nikola and Lucid both announced secondary stock offerings today. As we mentioned in the textbook, SEOs often have a negative effect on stock prices, and these announcements were not exceptions. Nikola announced a $400 million stock offering, to be sold at the market price. The stock price dropped about 10 percent on the announcement. For Lucid, the company announced an $8 billion shelf offer to be sold over the next three years. In this case, the stock "only" dropped about 7 percent.

Rivian Lockup To Expire

Electric car company Rivian went public on November 9, 2021, which means its lockup, scheduled for 180 days after the IPO, is scheduled to expire next week. A lockup prohibits early investors and corporate insiders from trading the company's stock prior to the lockup expiration. In this case, Ford and Amazon are two early investors with large stakes in Rivian, but nether has indicated whether it will sell Rivian shares. A stock price can often drop significantly after the lockup as large shareholders attempt to sell shares. However, Rivian is down about 70 percent from its IPO price, so a price drop after the lockup may not happen. For example, Meta Platforms and Uber both saw price increases after the lockup. As the article states, the market is forward looking, so the potential price drop may already factored into the stock price.

A Cold Secondary Stock Offering

You can own a sports team. The Green Bay Packers are offering 300,000 shares of stock at a price of $300 per share.There are currently a little over 5 million shares of the Packers outstanding. Of course, you will never receive a dividend and have no say in the operations of the Packers. Since you are now a part of of an NFL franchise, there are rules: You cannot own another NFL franchise, you can't act as an agent for any NFL player, you can't publicly criticize the NFL, its management, coaches, or officials, and you can't bet on any NFL games. It doesn't sound like there is much green investing in Green Bay stock!

SPAC Issuance Slows

Early in the year, SPACs were all the rage as a way to sidestep the IPO process. In January, 97 SPACs went public compared to 27 IPOs.  In July, there were only 32 SPACs compared to 57 IPOs. In fact, many SPAC investors are selling their shares or redeeming shares when a deal is announced. Reasons for the slowdown in SPACs are increased SEC scrutiny and the fact that 438 SPACs that had raised over $130 billion combined have yet to find a merger partner. Additionally, as Jay Ritter from the University of Florida notes, 94 of 131 SPACs that have announced mergers since October 2020 are trading below the initial $10 price.

Chinese Companies Face Delisting

China has recently asserted more control over private companies in that country. Now, the SEC is threatening to not approve new company listings for companies based in China and possibly delist currently listed NYSE and Nasdaq companies based in China. Most Chinese companies do give direct ownership, but often use the variable interest entity structure (VIE). In a VIE, a shell company is created in a foreign jurisdiction like the Cayman Islands. The shell company has a claim on the profits and assets of the parent company, although whether the claim is enforceable is debatable. As a result, the investment is more like an investment in a company in the Cayman Islands. Since the SEC requires full and fair disclosure, the SEC feels this unusual corporate structure should come with more warnings.

China Cracks Down on IPOs

The IPO market has been hot this year, with more than 200 offerings raising over $70 billion. Of these IPOs, 30 were Chines companies, making 248 U.S. exchange listed China-based companies totaling $2.1 trillion in market value. Now, new rules by the Chinese government may slow Chinese domiciled companies listing on U.S. exchanges. The Chinese State Council stated that it would update the rules for "the overseas listing system for domestic enterprises"and tighten restrictions on cross-border data flows and security. China has already launched an investigation into ride-hailing app Didi. And Nasdaq-listed Weibo has announced plans to go private.

SPAC Issues Fall

SPAC issuance this year has been at a record pace, but an accounting change by the SEC appears to have slowed the market dramatically. The SEC recently announced that warrants issued by SPACs would be classified as liabilities, not equity. In March, 109 SPACs went public, but that number is is down to 10 in April. Warrants are typically granted to early investors as extra compensation for the cash invested. Valuing these warrants will be expensive and it appears that many companies may not have the internal capacity to do so. And the warrants will need to be valued every quarter when the company files its 10-K.

SPACs Explode

Special purpose acquisition companies (SPACs) have grown dramatically in the past year and a half. The sole purpose of an SPAC is to go public, with the funds raised in the IPO being used to purchase a private company. In 2013, there were 10 SPAC IPOs. This number grew to 248 in 2020. But 2021 is a banner year for SPACs as the growth trend has accelerated. So far this year, there have been over 200 SPACs. During the last week of February, 50 SPACs filed preliminary paperwork for an IPO, implying an annual pace of about 2,000 per year. In fact, today there were 15 SPAC IPOs.

VC Hits Record

Even though economic shutdowns from COVID-19 have slowed the economy, it hasn't affected the venture capital market. Andreessen Horowitz closed two $4.5 billion funds, increasing the total venture capital raised in 2020 to $69.1 billion, surpassing the previous record of $67.8 billion raised in 2018. However, there were 589 VC funds started in 2018, but only 287 VC funds started in 2020. As the numbers show, there are fewer, but larger, VC funds started.

Hertz SEO

We had previously discussed the Hertz bankruptcy filing. In an indication that the current economic conditions caused by the COVID-19 lockdown are unique, Hertz is planning a secondary stock offering while in bankruptcy. An SEO in the middle of a bankruptcy filing has never been attempted before. The company has warned prospective shareholders that it is unlikely that they will receive anything in bankruptcy, and barring a rapid improvement in the company's prospects, will almost certainly be wiped out. Based on the current stock price, Hertz hopes to raise $500 million. Hertz currently owes about $2.3 billion. This is certainly an SEO we are not trying to jump in line to buy.

Warner Music's IPO

Warner Music Group has announced that it will continue with its IPO. The company plans to offer 70 million shares at a price of $23 to $26 per share, which would raise about $12.5 billion. An interesting part of the IPO is that all of the funds raised in the IPO will go to current shareholders and the company will receive no cash. Additionally, Access Industries, the current majority shareholder, will retain more than more 99 percent of the voting rights.

IPOs Get Direct

Spotify and Slack have recently gone public using a direct listing. In a direct listing, the firm arranges for its stock to be listed directly on an exchange without the help of underwriters. One downside to a direct listing for the company is that it cannot sell new shares in the listing. Now, the NYSE and NASDAQ are proposing new rules that not only would allow more companies to use a direct listing. The proposals would allow also companies to raise capital in a direct listing. Both exchanges are proposing methods to allow a company to sell new shares in a direct listing, although the mechanics have not yet been decided. Additionally, a drawback of the current direct listing process is that a company must have at least 400 shareholders who own at least 100 shares each before the listing. NASDAQ is proposing to allow a 90 period after the listing for a company to meet this requirement.

DraftKings Goes Public

Daily sports wagering company DraftKings will be going public in 2020 in an unusual way. DraftKings will complete a merger with the publicly traded blank check company Diamond Eagle. Since Diamond Eagle is already publicly traded, DraftKings will become publicly traded after the merger without having to file all of the necessary SEC paperwork associated with a traditional IPO. DraftKings will also purchase sports betting technology company SBTech for $300 million, with the financing for this acquisition from institutional investors.

Bill.com's Partial Adjustment

When Bill.com filed for it's IPO in November, the indicated price range was $16-$18. Earlier this week, the company raised the range to $19-$21, before settling on $22. When the IPO hit the market yesterday, the price jumped 61 percent. The company raised $215.6 million, but apparently left about $131 million on the table. Whether that comes back to haunt the company is yet to be seen: Sales increased about 60 percent from the previous year, but losses have also increased.

WeWork Postpones IPO

Shared workspace company WeWork has apparently delayed its IPO. The company was expected to go public at the end of the month, but low investor demand apparently halted this plan. It was reported last week that the company might value its stock between $10 and $12 billion, lower than the $12.8 billion in equity already invested in the company, and dramatically lower than the $47 billion valuation in January when SoftBank invested $2 billion.

An ICO Bubble?

A couple of years ago, coins or tokens, were the new frontier of investing. Now, it appears that the fantastic returns offered in this investment were often only temporary, as are most fantastic returns. A recent Twitter post post notes that the median ICO return in U.S. dollars is negative 87 percent and continues to go lower. Although several ICOs have outperformed bitcoin, most have not. Of course, many of these ICOs were likely destined to be poor performers and sold by being hyped to uninformed investors. 

An Uber IPO

Car ride service Uber went public today and it was anything but a smooth ride for investors. The stock went public at $45 per share, at the low end of the range. The stock opened at $42, climbed back to $44.85, before closing at $41.57, a drop of almost 8 percent from the IPO price. Uber's first day of trading mirrors that of competitor Lyft, although Uber's price drop wasn't as bad as Lyft's. Of course, neither company has turned a profit to date and both are burning cash at a high rate. Even with these concerns, Uber is still valued at about $76 billion.

Investors Sue Lyft

Lyft's stock price has fallen 17 percent from its IPO price of $72. An now, investors are suing the company, claiming the IPO was over-hyped. Specific claims in the lawsuit are that the company exaggerated its market share and the company failed to disclose that it was about to recall 1,000 bikes in its ride-share program.

Slack Goes It Alone

In April 2018, Spotify underwent a direct listing on the NYSE. Now, it appears that corporate messaging service Slack will also undertake a direct listing. Both companies have sufficient cash on the balance sheet, which reduces the need to raise cash from a traditional IPO. The direct listing will provide liquidity for Slack's current shareholders and eliminate the floatation costs associated with an IPO. It will interesting to see if Slack initiates a stock buyback in the near future, similar to what Spotify did.

Lyft Stock Not Lifted

Ride sharing company Lyft went public on Friday. The stock price jumped as much as 23 percent, before falling to a gain of 9 percent. Today, the stock took a nose dive, dropping 11 percent, trading below its initial offering price. Lyft has yet to earn a profit, and recorded a loss of more than $900 million during 2018. How the Lyft IPO affects the decision to go public for other tech companies like Uber, Slack, and Pinterest is yet to be seen.