The IPO market continues the strong summer momentum this week with deals including Vertex (VERX) and Vital Farms (VITL). There are a total of nine deals on the calendar this week (two have not set a date for pricing yet but intend to try for this week.) In addition firms are setting terms and going into marketing this week, notably Rackspace (RXT) just kicked off their roadshow.

It’s also notable that the A-1 deals are still often led by the Goldman/Morgan Stanley duo. This was the “gold standard” for traditional IPO deals back in the 1990’s and here we are thirty years later noting the same phenomenon.

Vertex (VERX) is another enterprise SaaS play that provides tax software and related services. Investors are going to like the margins in this business. LTM revenues of $336M were up 18% YoY with gross margins over 60% and EBITDA margins over 20%. The proposed price range is $14-16 which suggests a market value of ~$2B. Given the huge success of other deals in this space, notably Avalara (AVLR), this one should price well and trade up from there. See The Astonishing Avalara for more background on AVLR. Goldman/Morgan Stanley.

Vital Farms (VITL) is a “farm to fork” play that focuses on eggs, butter and related products. They are the largest producer of pasture-raised eggs in the US which are gaining share over “plain” eggs.  What started as a Whole Foods kind of product is enjoying broader appeal as consumers everywhere look for more natural, well-sourced products and are willing to pay a premium price. With the proposed range of $15-17 the market value is ~$700M on $155M of LTM sales which were up 32% YoY. The routine concerns are “How many consumers will pay $5 for a dozen eggs?” and competition from industry giants like Cal-Maine (CALM) who are 10x as large and have caught on to the demand and offer their own premium eggs. There’s another aspect of VITL that should appeal to investors who are interested in what we might call the “premium consumer” space. These are the people who pay up for brands like Yeti (YETI), Canada Goose (GOOS) or Peloton (PTON). It may not be the largest in terms of revenue but it often is in terms of gross profit. The Apple iPhone is another good example here – small units relative to the market but virtually all the gross profit. Goldman/Morgan Stanley.

Li Auto (LI) is an Chinese EV maker offering their Li ONE which is a six-seat SUV. They are positioning themselves as the “family EV” choice in China with a price range of ~$21K to $70K. At the proposed range of $8-10 the market cap is ~$8B on LTM sales of $162M but they have only just started commercial shipments of the Li ONE. There’s a prevailing sentiment that we at the inflection point for the EV globally with shares of Tesla (TSLA) hitting new highs and other EV players being well-received in the market. Goldman/Morgan Stanley.

Vasta Platform (VSTA) is a Brazil-based provider of K-12 curriculum solutions. It’s a $300M deal at a $1.4B valuation. The company is being spun out of a larger company. They had LTM of ~$200M growing 17% and the proposed valuation of ~$1.4B seems a little high for a foreign EdTech company. We’ll take a closer look prior to pricing. Current range is $15.50–$17.50. Goldman/BofA.

AlloVir (ALVR) has a drug in Phase 2 that targets stem cell and organ transplant patients. Their are coming off a strong Phase 1 and have other drugs in development including one for COVID-19 (as if we need another.) Price talk is $16-18. Morgan Stanley.

Fathom Holdings (FTHM) is trying to do a small deal ($20M) as a “cloud-based real estate technology platform” similar to Redfin (RFIN) yet they leave Zillow (Z) out of their presentation as a competitor. They company is in a lucky position – real estate sales are booming and everything has to be done online/remote. So it’s possible for that rising tide to lift all boats. The question is can a small player like this compete with a monster like Zillow? The current range is $7-9 but this feels like a deal that they will “get done at any price.” Roth.

Goedeker (GOED) is an even smaller deal at $10M. The company operates an e-commerce platform for appliances and home goods. This is a pretty fragmented market with many local suppliers already moving online and national chains like Home Depot (HD) and Lowe’s (LOW) well established providers of these services. If anyone thought this was a scrappy success they’d be disappointed by the declining revenue. They reduced the range but this one feels like it will get postponed/withdrawn. New lower range is $9-11. ThinkEquity

There are two SPAC deals this week – ACE Convergence Acquisition (ACEV) plans to raise $200 million to target a business in the the IT infrastructure software and semiconductor sector and Deerfield HealthTech (DFHT) which seeks $125M. The name speaks for itself.

2 Comments

  1. ronald lazar on 08/03/2020 at 10:09 am

    do you have comments on Rackspace ?

    • Kris on 08/05/2020 at 10:57 am

      It came together late and priced at the low end. I think the issue is proving they can succeed despite Google, Microsoft and Amazon all having a big head start.

Leave a Reply