Pets at Home’s IPO prospectus opens a window into the lucrative world of Britain’s cats and dogs. The company, which went public on Wednesday, has a 12 per cent share of the £5.4bn pet care market and there are some fascinating nuggets in its 261-page document. Here are six of the best.
1. What recession? Britain’s pets haven’t been tightening their collars.
Living standards in the UK have fallen to their lowest in a decade (a fact not unrelated to Poundland’s successful IPO on Wednesday) but the country’s pets appear to be better off than ever.
Pets.com's once-ubiquitous mascot (Bloomberg)
It is probably unfair to draw a parallel between Pets at Home, with its real stores, real turnover and real earnings, and Pets.com, the US pet products etailer that was one of the dotcom bust’s most notorious flameouts. But the ghost of Pets.com’s sock-puppet mascot haunts the latest plans for initial public offerings, of which Pets at Home’s flotation is the freshest. Here are the lessons:
Royal Mail and Chrysler are both businesses with a proud industrial legacy that suffered in recent decades and each has embarked on an initial public offering. The outcomes are quite different.
Shares in Royal Mail soared on their stock market debut today, raising questions about whether the UK government and its advisers underpriced the deal. The heavy demand for shares, despite trenchant opposition from the Royal Mail’s trade unions, recalls the days of Margaret Thatcher’s privatisations.
Social media buzzed around Mark Zuckerberg’s comment on Tuesday that he wrote the “founder’s letter” for Facebook’s initial public offering registration statement on his mobile phone. (Big deal – investors who have suffered since must wish he’d used the phone’s computing capacity to set the offer price at a more reasonable level.)
I was more interested in his admission that the social networking group had “burned two years” betting on the wrong mobile technology. For most companies, that doesn’t sound like a long time to spend exploring a potentially highly profitable dead-end, but remember, Mr Zuckerberg hit the button that launched “Thefacebook.com” on February 4 2004. It has barely been in existence eight years. In that context, to burn two years is like Ford (founded 1903) wasting a quarter of a century developing a five-wheel car or General Electric (1892) blowing 30 years exploring the possibilities of a steam-powered lightbulb.
Britain is “considering new rules” to make the London Stock Exchange more attractive to start-ups, according to Bloomberg, using the US “Jumpstart our Business Startups” Act as the model.
Careful. The quest to make individual exchanges more attractive than their counterparts for initial public offerings is fraught with risk and can quickly turn into a race to the bottom on standards.
Investors with long-ish memories will recall that Ariba, the business-to-business ecommerce network that SAP has just agreed to buy, was a dotcom IPO star of 1999: its stock surged 291 per cent on its debut, giving it a market capitalisation of $3.7bn – only just short of the $4.3bn that the German enterprise software company has agreed to pay for it 13 years later. Those were the days, Facebook investors may ruefully reflect.
Ariba had much further to go in the short period before the dotcom bubble deflated in 2000 – at one point it was worth a heady $30bn. But its longevity, before finally being snapped up by one of the companies it successfully challenged, demonstrates the durability of its underlying offering. Ariba’s early potential was obviously hugely overrated at the peak of the internet boom, but it grew into that original valuation.
Facebook investors: you have been warned. The last time I was in Silicon Valley was 12 years ago, in the very week that the Nasdaq crashed, marking the end of the dotcom boom. That I should fly back into San Francisco on the eve of the social network’s initial public offering cannot be a good omen.
I’m not here to write about Facebook – for expert insights, read the analysis of my San Francisco-based colleagues or the FT Lex team – but the IPO overshadows most discussions. What strikes me is how entrepreneurs, technology executives and analysts I’ve met are reluctant to talk publicly about Facebook and its founder Mark Zuckerberg. Ask them what they think about him and they tend to preface their remarks with a polite request that this part of the interview should be off the record.
Mark Zuckerberg, Facebook’s founder, sets himself an admirable test in the company’s filing for an initial public offering – “that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do.” Unfortunately, he then flunks it.
Like Larry Page and Sergey Brin, the founders of Google, which went public in 2004, Mr Zuckerberg has written a letter to shareholders to explain his approach to their new investors. While Google’s letter was brisk and open about how they intended to ignore short-term earnings targets, his is aspirational and vague.
“By focussing on our mission and building great services, we believe we will create the most value for our shareholders and partners over the long term . . . We don’t wake up in the morning with the primary goal of making money, but we understand that the best way to achieve our mission is to build a strong and valuable company,” Mr Zuckerberg writes.
Fraud did not directly trigger Enron’s bankruptcy 10 years ago. The underlying criminal conspiracy was only fully revealed later. Enron’s failure was, initially, due to a classic collapse in counterparty confidence. It was a death spiral – starkly familiar to everyone who watched the 2008 implosion of Lehman Brothers – that ended on December 2 2001.
It is too easy to blame the energy trader’s demise only on bad people doing bad deeds and fail to learn the lessons. Plenty of watchdogs that should have barked in 2001, if not earlier – directors, auditors and regulators, of course, but also rating agencies, Wall Street research analysts, investors and, yes, the media – kept quiet.
The pop in shares in LinkedIn following its initial public offering last week has prompted a heated debate over the tactics of the bankers that underwrote the offering and whether they deliberately underpriced to benefit their favoured clients.
Joe Nocera of the New York Times opined on Saturday that LinkedIn was “scammed by its bankers”:
The fact that the stock more than doubled on its first day of trading — something the investment bankers, with their fingers on the pulse of the market, absolutely must have known would happen — means that hundreds of millions of additional dollars that should have gone to LinkedIn wound up in the hands of investors that Morgan Stanley and Merrill Lynch wanted to do favours for.
Nocera was backed by Henry Blodget of Business Insider, prompting a back and forth with The Epicurian Dealmaker on whether they knew what they were talking about. The debate was summarised by Felix Salmon in this post.