If an issuer takes on an anchor investor but then decides to pursue a trade sale instead of an IPO, the anchor investor could become a roadblock, such as by refusing to sell its stake. Anchor investors are especially well positioned because they already own a significant share of the issuer.Īn important caveat: Issuers should be wary of selling a stake to an anchor investor if they are simultaneously preparing for an IPO and a full sale to a third party and intend to decide which track to follow at a later date. If the issuer or its majority owner plan to sell an additional stake after the lockup period, a supporting investor is positioned to be a natural buyer-without a fixed lock-in for either party. Onboarding a Potential Acquirer Without a Lock-In.Indeed, BCG’s research indicates that issuers backed by private equity or venture capital firms, common types of supporting investors, receive higher IPO valuations, on average. A cornerstone investor’s entry price can send a strong indication of a realistic value for determining the IPO price. Onboarding an anchor investor creates a market-tested valuation base, such as through jointly realizing a full-potential plan or combining buy-and-build capabilities in M&A. Joining forces with a supporting investor can help to maximize value. Having a known and respected investor onboard builds confidence among other potential institutional and retail investors and will likely facilitate the book building process. Building Confidence Among Potential Investors.These benefits are especially important for IPOs involving a relatively large portion of the issuer’s shares: Issuers can benefit in several ways by taking on supporting investors. The issuer gains the advantages of a true public offering while enjoying the benefits of having a respected player onboard to support the offering. In light of this, following the traditional IPO route with the addition of a supporting investor could be seen as a viable alternative. Common motivations include gaining an external stamp of approval for the business model, reducing execution risk, and pressure-testing the company’s valuation before approaching the broader investment community. The motivations to go public via a reverse merger with a SPAC are similar to those underlying the decision to onboard a supporting investor. These figures respresent a huge leap compared with 2019, when 53 SPACs publicly listed worldwide, collecting a total of $12.6 billion. The frenzy has continued in 2021: the first quarter saw 296 SPAC listings, with total proceeds of $95.5 billion. They are a hot topic in capital markets, for good reason: in 2020, new listings of SPACs rose to 299, with global proceeds of approximately $92.1 billion. SPACs are listed shell companies whose sole purpose is to merge with private companies and thereby take them public. (See “SPACs Versus Supporting Investors.”) The surge in activity was driven, in part, by new listings of special purpose acquisition companies (SPACs). The global proceeds were $227 billion, a 29% increase versus 2019 and the highest level since 2010. The IPO boom was especially evident in China and the US for much of the year, while Europe saw significant activity in the fourth quarter. In 2020, despite the COVID-19 pandemic, the number and proceeds of IPOs increased sharply across the globe. In a Booming Market, Issuers Gain Crucial Benefits However, an issuer must carefully select its supporting investor in order to ensure that each party fully realizes the potential rewards. Supporting investors, for their part, can benefit from early access, value realization via the stock market, and strategic flexibility.īCG’s analysis shows that these benefits are tangible and empirically verifiable. Their presence as shareholders helps to mitigate the risks of an IPO by building other investors’ confidence in the issuer, boosting the IPO valuation, and, ultimately, driving higher total shareholder return (TSR). A company should consider taking on supporting investors whenever it plans to sell a relatively large equity stake in its IPO. Supporting investors are typically known and respected players-whether large corporations or financial investors. We distinguish two types: anchor investors buy a stake before the IPO process begins, while cornerstone investors acquire shares after the process is initiated but before the formal book building. Among the actions that issuers should systematically consider is onboarding a supporting investor.
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