Equity research specialist Woodward Research today issued a report on Trade Me (Report), the dominant online auction and classified advertising company in New Zealand owned by Fairfax Media (ASX:FXJ). Fairfax Media plans to raise $NZ363.5 million through the sale of 34% of Trade Me through an initial public offering (IPO) which closes on 6 December.
Woodward Research’s report concludes that Trade Me is now a mature company with strong cash flows and impressive profitability, and well able to support an attractive dividend. Woodward Research has valued Trade Me at $2.54 per share with a 12-month target price of $2.80 per share.
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Energy Mad (MAD.NZ) has successfully completed their initial public offering (IPO) and will list on the NZX on Wednesday (19 October 2011). Woodward Partners and Bell Gully were advisors to Energy Mad during the IPO.
Chief Executive and Co-Founder Mr Chris Mardon said becoming publicly listed was an important milestone for Energy Mad. “The IPO gives us the funding to continue to execute the business plan and strategy of the Company and provides profile and credibility for the Company, particularly in our United States and European markets”, he said.
Mr Mark Donnell, Director, Woodward Partners, said “We’re encouraged to see New Zealand investors backing a local growth company as it expands overseas.”
Congratulations to Energy Mad.
With the LinkedIn ($LNKD) IPO occurring today – I wanted to give some thoughts. Here they are:
LinkedIn ($LNKD) IPOed today closing at $94.25 for a market capitalisation of $8.9bn – at 31 December 2010 $LNKD had $92m of cash and no debt – so we will give $LNKD an Enterprise Value (EV) of $9.0bn.
Big result. On SecondMarket (private secondary market) LinkedIn shares had traded at $35 a share in March 2011. The IPO was priced at $45 a share. End of first day $94 a share. The IPO bankers – Morgan Stanley, Merrill Lynch and Allen & Company – may have some questions to answer about pricing. A lot of interest – a good IPO for the technology/internet sectors.
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Congratulations to the Xero team for attracting US-investor Peter Thiel to the company (release). Peter Thiel was a co-founder of PayPal (sold to eBay for US$1.5 billion) and the first external investor into Facebook and is on the board.
This is FANTASTIC news for both Xero and New Zealand.
The really interesting part of the press release is:
“The investment in Xero will be made through Valar Ventures LP, Mr Thiel’s New Zealand investment firm. Valar Ventures focuses on helping New Zealand companies in the post-revenue phase move into global markets. The Xero placement is the firm’s inaugural investment.”
This could be a huge opportunity for many more New Zealand companies.
Great job Rod Drury and the whole Xero team.
One of the big themes that we are seeing around the New Zealand early-stage capital raising space is a need for a lead investor. There is angel money available for opportunities – but a lot is “following money” not “lead money”.
Lead money – or a lead investor will:
Conduct the initial due diligence on an investment opportunity. Usually the lead investor has the largest stake (or close to it) in a prospective round. IMPORTANT - The lead investor will negotiate the terms of the capital raising round (including valuation) with the entrepreneur. Other investors then co-invest on these terms, often after being pulled in by the lead investor or the entrepreneur (the “following money”).
In New Zealand we have a lot of “following money” but very little “lead money”.
Elad Gil a San Francisco-based entrepreneur (ex-Google, start-up Mixer Labs recently bought by Twitter – where he currently works) has articulated a reserve strategy to the traditional “lead money” approach called a Party Round.
A focus of Gil’s analysis is the achieving of a higher valuations for entrepreneurs in a Party Round. Our view is that, for the majority of New Zealand start-up companies, the expertise that a high-quality lead investor brings (like a Rowan Simpson) greatly increases the likelihood of a start-up succeeding. Our advice to start-up companies is to get the highest-quality team of investors you can that will help you succeed – valuation should be a secondary consideration.
But – in the New Zealand context there is a lack of “lead money” so we would recommend start-up companies look closely at the Party Round concept. Not because it will get companies a higher valuation – but because it might be the only way that you end up getting funded. If you can get a lead investor – we strongly recommend that route. But if you can’t find a lead investor and are struggling to get a round complete – look at the Party Round approach.
One final point – if you are an entrepreneur looking at a Party Round. Please get some good advice around valuation and deal structuring.
