Big Things

9 big things: Amid heartbreak and horror, IPOs heat up

June 7, 2020
It was difficult to focus on finance this week. The world continued to mourn the killing of George Floyd, and police in several US cities met peaceful protesters with sickening violence, stirring up a storm of anger and debate over police brutality, the inequities of American criminal justice, and the nation's 400-year history of systemic and often vicious racism. I feel I would be remiss if I didn't use this platform to say that racism of all kinds is ugly and dangerous, and that black lives matter, and that justice and equality will always be things worth fighting for. 

I also realize that for white guys like me, it's probably a time for more listening than lecturing. 
 
But this is a newsletter about the past week in the private markets. So beyond the preceding paragraphs, focusing on finance is what we are going to try to do. 

Against that backdrop of building civil unrest in the US, one might have expected some hesitance among investors about a pair of high-profile IPOs. Instead, both stocks soared. And they weren't the only ones. The resilience of the stock market lately, even in the face of widespread protests and a pandemic—yeah, there's still a pandemic—is one of nine things you need to know from the past week:
 
A driver raises a fist in support of protesters in New York. (Scott Heins/Getty Images)

1. Up and to the right

In Brooklyn and the Bronx, scenes of protest, chaos and violence unfolded this week. But on Wall Street, in Lower Manhattan, it seemed from afar to be business as usual. The stock market continued to surge, and private investors of different stripes watched portfolio companies go public without a hitch. 

Warner Music Group was the biggest of the bunch, with its stock soaring 20% on its first day of trading after an IPO that raised more than $1.9 billion for Len Blavatnik, the leader of Access Industries, which bought Warner Music for $3.3 billion in 2011. The record-label conglomerate closed the week with a market cap of $15.3 billion. 

ZoomInfo, a provider of business intelligence software, priced its IPO this week at $21 a share and then opened trading Thursday at $40, providing a financial boon to majority owners TA Associates and The Carlyle Group. ZoomInfo ended the week with a $14.9 billion market cap, a stunning rise for a company that was acquired for a reported $500 million just last year. 

Pliant Therapeutics, a VC-backed developer of treatments for fibrotic diseases, raised $144 million and saw its newly public stock close the week up 39% from its initial pricing. Another drug developer, Legend Biotech, priced its IPO above its expected range and saw a 61% pop in its first day of trading. It was the same story for payments specialist Shift4 Payments, which priced its offering above range before its stock climbed 46% on its opening day. 

Taken as a whole, the success of these listings is the latest sign of a stunning recovery for a stock market that plummeted in the early days of the coronavirus crisis. The Dow Jones Industrial Average is now up nearly 46% since March 23. Nothing seems to be able to slow stocks down, not a global pestilence nor widespread social unrest nor eye-watering levels of unemployment—although, to the surprise of many, the US reported Friday that unemployment levels declined in May, likely a sign of the economy gradually restarting.

What's the reason for the market's resilience? Or, more accurately, the reasons? One factor is surely that the March plunge made many assets newly attractive to value investors who had been waiting years for favorable buying conditions. Another may be investor confidence in the stabilization efforts by central bankers and other financial lever-pullers. Some of it may be wishful thinking, an experiment in mass psychology, a belief among investors that they can will the economy back to health. There's also the fact that markets are amoral; perhaps conflating the value of companies with social issues is misguided in the first place. 
 
Or maybe it's something else entirely. The stock market's surge is no guarantee that the IPO arena is on the verge of a full recovery after a months-long dry spell. But it does mean that the companies that made the leap to go public this week encountered a cushy landing. 

2. Speaking up

Larger conversations about race and equality spilled over this week into venture capital and private equity, two realms that were largely built and have always been dominated by white men. Many firms condemned racism and expressed support for equality, with some pledging to step up investment in companies led by underrepresented people. Saying something is a great place to start. Many founders and investors will now be watching to see which firms follow through

3. Diversity funds

At least two investors took concrete steps this week toward providing better support for founders from diverse backgrounds. SoftBank unveiled a $100 million vehicle that will only back companies led by people of color, and Andreessen Horowitz launched a fund to focus on underserved communities, beginning with $2.2 million of the firm's own capital. SoftBank COO Marcelo Claure had this to say to CNBC: "I see a lot of people have good intentions, but I think each one of us needs to contribute to make change in America."

4. Facebook furor

Any other week, headlines might have been dominated by a digital walkout and budding revolt among Facebook workers over the company's handling of posts by President Trump that employees say incited violence against black people. But the saga was just one thread of the week's larger turmoil. It did involve the private markets, however: Talkspace, a VC-backed therapy startup, pulled out of a planned partnership with Facebook, with CEO Oren Frank writing that the company would "not support a platform that incites violence, racism, and lies."
 
Mark Zuckerberg found himself at the center of a firestorm this week. (Drew Angerer/Getty Images)

5. Deal debates

Charles Schwab won approval from the US Department of Justice this week for its pending $26 billion acquisition of TD Ameritrade, a combination that is set to reshape the online brokerage industry. In the world of luxury, reports surfaced that LVMH may seek to renegotiate its agreement to purchase Tiffany & Co. for $16.2 billion because of coronavirus concerns. On Friday, though, the New York Post and others reported that LVMH had decided to stand by the deal. 

6. A record fund

Ardian, a European private equity powerhouse, raised $19 billion for a new secondaries vehicle this week, the largest such fund to date, according to PitchBook data. In the US, Francisco Partners raised some serious capital of its own from LPs, pulling in nearly $10 billion for three vehicles, including a $7.45 billion buyout fund. 

7. Exit activity

Cerberus Capital Management is believed to have exited its investment in Steward Health Care, a network with around 42,000 healthcare employees. Steward Health may be best known for reportedly announcing it would close a hospital in Pennsylvania amid the pandemic if it didn't receive financial aid from the state, causing a mayor to say the company had "kept the state hostage." In other exit news, Cortec Group sold the last of its stake in cooler purveyor Yeti this week, marking the end of one of the most profitable investments in recent PE history. 

8. Other IPO talk

More offerings are in the works after this week's string of successes. Vroom, a used-car seller, set a price range for its offering on Monday and had already increased it by Friday. Bloomberg reported that Unity Technologies, the developer of a platform for creating 3D content, is preparing an IPO that could occur sometime this year. The business was last valued at $6.3 billion by VCs, according to a PitchBook estimate. And another VC-backed company went public this week by less conventional means, as electric vehicle startup Nikola completed a reverse merger with a special-purpose acquisition company. 

9. Travel bets

After already taking stakes in Airbnb and Expedia since the onset of the pandemic, Silver Lake continued to push its chips into the travel and hospitality market by leading a $108 million investment in Vacasa, which operates a platform for vacation rentals. It's the firm's second major investment in the company in the past year, following a $319 million Series C in October. 

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