IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/finaccel-pte-ltd" target="_blank" data-smartkarma-citation="entities:33791:1" rel="noopener">FinAccel (1411023D SP)</a>, the parent of Kredivo, is the leading buy now, pay later (BNPL) platform in Indonesia with an e-commerce BPNL market share of around 40%-45%. Kredivo intends to go public in the US through a SPAC merger with VPC Impact Acquisition Holdings II.The combined company will have an EV of $2.0 billion and an equity value of $2.5 billion at closing. The deal implies 6.3x 2022 EV/Sales based on Kredivo’s forecasted revenue. The transaction involves a 100% rollover by existing Kredivo shareholders, a $120 million fully committed PIPE (led by Marshall Wace, Corbin Capital, SV Investment, <a href="https://www.smartkarma.com/entities/palantir-technologies-inc" target="_blank" data-smartkarma-citation="entities:27728:1" rel="noopener">Palantir Technologies Inc (PLTR US)</a>, Maso Capital, and sponsor Victory Park Capital) in addition to a $55 million convertible note funded by existing investors <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> and Square Peg. Kredivo is expected to receive over $430 million of gross proceeds. Existing shareholders will have an 83% ownership of the combined company including the concurrent investment. The BNPL market is rapidly becoming a must-have product for payment providers. This necessity has spurred the launch of in-house solutions from global payment providers such as <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a> as well the M&amp;A as evidenced by <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a>'s bid for <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a>.  <div class="content-highlight">Since its launch in 2016, Kredivo has established itself as a leading BNPL player in Indonesia due to sustainable competitive advantages built around an in-house credit bureau and low customer acquisition costs. Kredivo is not resting on its laurels but increasing its addressable market through international expansion in adjacent countries and the launch of a new business line (Lime). Kredivo is using its market-leading position to deliver high growth with a declining loss margin. Refreshingly the YTD performance suggests that management are well on track to meet their forecasts. Finally, the proposed valuation is also attractive in comparison to global BNPL peers. </div>

FinAccel (1411023D SP), the parent of Kredivo, is the leading buy now, pay later (BNPL) platform in Indonesia with an e-commerce BPNL market share of around 40%-45%. Kredivo intends to go public in the US through a SPAC merger with VPC Impact Acquisition Holdings II.The combined company will have an EV of $2.0 billion and an equity value of $2.5 billion at closing. The deal implies 6.3x 2022 EV/Sales based on Kredivo’s forecasted revenue. The transaction involves a 100% rollover by existing Kredivo shareholders, a $120 million fully committed PIPE (led by Marshall Wace, Corbin Capital, SV Investment, Palantir Technologies Inc (PLTR US), Maso Capital, and sponsor Victory Park Capital) in addition to a $55 million convertible note funded by existing investors Naver Corp (035420 KS) and Square Peg. Kredivo is expected to receive over $430 million of gross proceeds. Existing shareholders will have an 83% ownership of the combined company including the concurrent investment. The BNPL market is rapidly becoming a must-have product for payment providers. This necessity has spurred the launch of in-house solutions from global payment providers such as Paypal Holdings (PYPL US) as well the M&amp;A as evidenced by Square Inc (SQ US)'s bid for Afterpay Touch (APT AU).  Since its launch in 2016, Kredivo has established itself as a leading BNPL player in Indonesia due to sustainable competitive advantages built around an in-house credit bureau and low customer acquisition costs. Kredivo is not resting on its laurels but increasing its addressable market through international expansion in adjacent countries and the launch of a new business line (Lime). Kredivo is using its market-leading position to deliver high growth with a declining loss margin. Refreshingly the YTD performance suggests that management are well on track to meet their forecasts. Finally, the proposed valuation is also attractive in comparison to global BNPL peers. 

FinAccel/Kredivo SPAC Deal: Smooth Shopping

Event-Driven

<a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> is a leading buy now, pay later (BNPL) player. Afterpay revealed that <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> had agreed to acquire it through a recommended scheme of arrangement. Square will offer a fixed exchange ratio of 0.375 Square shares per Afterpay share. Based on Square's closing price on 30 July, the implied transaction price of A$126.21 per share is a 30.6% premium to the share price of A$96.66 per share on the last trading date (30 July). The deal has an implied value of A$39 billion and if completed, would be the largest in Australian M&amp;A history. The completion conditions include Afterpay and Square shareholder approval along with regulatory approval. Square intends to also establish a secondary listing on ASX. Afterpay shareholders will own 18.5% of the combined company on a fully diluted basis.<div class="content-highlight">While the share price has traded recently above the implied offer price, we think that offer is attractive in comparison to historical EV/Sales multiples and average share prices. With BNPL competition steadily increasing, the all-scrip deal gives shareholders the opportunity to benefit from the ability of the combined Square + Afterpay to expand the customer base and strengthen the product portfolio. At Square's current price of US$274.93 at the time of writing (+11% on Friday close), Afterpay shares are trading at a 22% gross spread to the indicative offer.</div>

Afterpay Touch (APT AU) is a leading buy now, pay later (BNPL) player. Afterpay revealed that Square Inc (SQ US) had agreed to acquire it through a recommended scheme of arrangement. Square will offer a fixed exchange ratio of 0.375 Square shares per Afterpay share. Based on Square's closing price on 30 July, the implied transaction price of A$126.21 per share is a 30.6% premium to the share price of A$96.66 per share on the last trading date (30 July). The deal has an implied value of A$39 billion and if completed, would be the largest in Australian M&amp;A history. The completion conditions include Afterpay and Square shareholder approval along with regulatory approval. Square intends to also establish a secondary listing on ASX. Afterpay shareholders will own 18.5% of the combined company on a fully diluted basis.While the share price has traded recently above the implied offer price, we think that offer is attractive in comparison to historical EV/Sales multiples and average share prices. With BNPL competition steadily increasing, the all-scrip deal gives shareholders the opportunity to benefit from the ability of the combined Square + Afterpay to expand the customer base and strengthen the product portfolio. At Square's current price of US$274.93 at the time of writing (+11% on Friday close), Afterpay shares are trading at a 22% gross spread to the indicative offer.

Square Lobs a Market-Defining Bid for Afterpay

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Magic Fairy Dust: Square (SQ.US) has agreed to purchase Afterpay Touch (APT.AU) [Afterpay) for USD 29 bn in an all-stock transaction – implying Afterpay’s shares to be worth AUD 126.21. This is not a bad outcome for Afterpay, which only posts consistent losses. Tencent Holdings (700.HK) [Tencent] stands to gain 462% on its initial stake for a gain of over USD 800 mn – not bad for a passive deal 15 months ago;  and
Risks Remain: In addition to Tencent is suspending new user registrations for its WeChat services, as it is undergoing a “security technical upgrade” in accordance with relevant laws and regulations, there are multiple other challenges. We have no doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. An FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

*Magic Fairy Dust: Square (SQ.US) has agreed to purchase Afterpay Touch (APT.AU) [Afterpay) for USD 29 bn in an all-stock transaction – implying Afterpay’s shares to be worth AUD 126.21. This is not a bad outcome for Afterpay, which only posts consistent losses. Tencent Holdings (700.HK) [Tencent] stands to gain 462% on its initial stake for a gain of over USD 800 mn – not bad for a passive deal 15 months ago;  and
Risks Remain: In addition to Tencent is suspending new user registrations for its WeChat services, as it is undergoing a “security technical upgrade” in accordance with relevant laws and regulations, there are multiple other challenges. We have no doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. An FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

Tencent Holdings – Clairvoyance Pays Off

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> and <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay (APT AU)</a> have <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02402191-3A571915?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a firm merger, the completion of which will create Australia's largest-ever buyout, exceeding <a href="https://www.smartkarma.com/entities/unibail-rodamco-se" target="_blank" data-smartkarma-citation="entities:21140:1" rel="noopener">Unibail-Rodamco SE (UL NA)</a>'s 2017 takeover of <a href="https://www.smartkarma.com/entities/westfield-corp" target="_blank" data-smartkarma-citation="entities:896:1" rel="noopener">Westfield Corp (WFD AU)</a> - discussed <a href="https://skr.ma/8TPFU" target="_blank" rel="noopener">here</a>.
Under the terms of the Offer, by way of Scheme, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share.
Based on Square’s closing price of US$247.26 on July 30, 2021, this represents an implied transaction price of ~A$126.21 per Afterpay share, or a premium of ~30.6%.
Following completion of the transaction, Afterpay shareholders are expected to own ~18.5% of the merged entity on a fully diluted basis.
Square may elect to pay 1% of total consideration in cash.
Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade Square shares via CHESS.
The merger is tentatively expected to complete in the 1Q22. The Scheme has the unanimous backing of both Boards. 
More below the fold.

Square Inc (SQ US) and Afterpay (APT AU) have announced a firm merger, the completion of which will create Australia's largest-ever buyout, exceeding Unibail-Rodamco SE (UL NA)'s 2017 takeover of Westfield Corp (WFD AU) - discussed here.
Under the terms of the Offer, by way of Scheme, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share.
Based on Square’s closing price of US$247.26 on July 30, 2021, this represents an implied transaction price of ~A$126.21 per Afterpay share, or a premium of ~30.6%.
Following completion of the transaction, Afterpay shareholders are expected to own ~18.5% of the merged entity on a fully diluted basis.
Square may elect to pay 1% of total consideration in cash.
Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade Square shares via CHESS.
The merger is tentatively expected to complete in the 1Q22. The Scheme has the unanimous backing of both Boards. 
More below the fold.

Independent research on the U.S. markets, Baptista Research

Baptista Research

Independent research on the U.S. markets

Baptista Research is an independent financial research house focused on the U.S. markets. We provide equity research as well as credit research reports on the top-listed U.S. companies with most of our focus on technology, consumer goods and services, automobiles, industrials, oil and gas, pharma, and healthcare. Our research has served more than 3000 institutional investors including mutual funds, hedge funds, banks, family offices, and various buy-side firms. We operate a research subscription service where institutions, as well as retail investors, can have priority access to all our research. We also have a wide distribution of our research reports across some of the top global financial platforms. Apart from equity research and credit research, we also provide advisory services with respect to mergers & acquisitions (M&A), private equity/ venture capital fundraising, valuation reports, and investment management services for corporates.
Baptista Research is owned and managed by Ishan Majumdar, an ex-Venture Capitalist/ Investment Banker, a Chartered Accountant, and a Masters’ degree holder in Management from HEC Paris. Ishan has nearly a decade of experience in Mergers and Acquisitions, Leveraged Buyouts (LBOs), Venture Capital Investing, Corporate Strategy, and Valuation in front-office roles at the likes of BNP Paribas CIB, Credit Agricole CIB, Groupe Danone, and TIW Private Equity. He has worked on and closed multiple acquisition deals, leveraged buyouts, and start-up investment transactions.

<ul><li>PayPal had a mixed quarter and reported a 19% top-line growth which was below expectations but managed to deliver an earnings beat.</li><li>The company saw 4.7 billion transactions during the quarter, up 27% as compared to the previous year and its payment transactions per active account were 43.5 million, an improvement of 11% versus the prior year quarter.</li><li>With eBay moving out of the payment platform, PayPal’s payment volumes were hit by about 8 percentage points and the eBay impact might stay in the coming quarters despite the Venmo growth.</li></ul>

PayPal had a mixed quarter and reported a 19% top-line growth which was below expectations but managed to deliver an earnings beat.The company saw 4.7 billion transactions during the quarter, up 27% as compared to the previous year and its payment transactions per active account were 43.5 million, an improvement of 11% versus the prior year quarter.With eBay moving out of the payment platform, PayPal’s payment volumes were hit by about 8 percentage points and the eBay impact might stay in the coming quarters despite the Venmo growth.

United States

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants. The Company offers online payment solutions. PayPal Holdings serves customers worldwide.

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Paypal Holdings (PYPL US)

FinAccel/Kredivo SPAC Deal: Smooth Shopping

Kredivo is using its market-leading BNPL position to deliver high growth with a declining loss margin. Refreshingly the forecasts are reasonable...

Arun George

Square Lobs a Market-Defining Bid for Afterpay

Afterpay revealed that Square had agreed to acquire it through a recommended scheme of arrangement. We think that the all-scrip offer is attractive...

Arun George

Tencent Holdings – Clairvoyance Pays Off

TENCENT HOLDINGS: Square has agreed to purchase Afterpay for USD 29 bn, and Tencent stands to gain 462% or over USD 800 mn. While positive,...

Thomas J. Monaco

Afterpay Ltd (APT AU): All Squared Away

I think it is highly illustrative the co-founders are happy to kick out at price ~22% below the recent high of A$160/share, potentially suggesting...

David Blennerhassett

Paypal Holdings - Investment Thesis

PayPal had a mixed quarter and reported a 19% top-line growth which was below expectations but managed to deliver an earnings beat. The company...

Baptista Research

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