Locaweb, which operates a website in Brazil, is listed on the Brazilian stock exchange (BOVESPA). The listing raises US $ 325 million and the market value is estimated at US $ 650 million (about 30 times the company’s projected net profit for 2020).
The company wants to spend half of the proceeds on cash and M & A. He suggested the possibility of M & A with 107 companies and revealed that he had already contacted 36 companies.
Brazil is showing growth in Internet-related businesses. In this blog, we would like to think about the aim of listing Locaweb and the background of other companies listing in the United States.
3 points to be noted in this news
- The need for fund procurement is increasing due to market expansion and intensified competition in the Internet industry.
- There are disadvantages associated with listing, which is a high hurdle, especially for startups that have just started.
- A US-listed Brazilian venture companies have also appeared.
Locaweb´s directors, who have achieved to IPO at Brazilian BOVESPA
Locaweb, a Brazilian internet company that operates websites, e-commerce operations, cloud services, and e-mail marketing, was founded in 1998 by Net Bubble by cousins of Gilberto Mautner and Claudio Gora. Both studied at the Massachusetts Institute of Technology (MIT) in the United States and are deeply versed in website operations, cloud computing, e-mail, and branding. A major shareholder, a major US private equity company Silver Lake (operating at US $ 43B or more), sold all of its 19% stake it had held 10 years ago, and founders retained 35-50% stake. It is expected to do. The listing raises US $ 325 million and is estimated to have a market value of US $ 650 million (about 31 times the company’s projected net profit in 2020).
Advantages and disadvantages of listing by a venture company
Here, we would like to consider the advantages and disadvantages of listing. Generally, it will be summarized in the table below. While there are benefits such as financing, improved governance, and enhanced brand power, the hurdles are more difficult for new start-ups because of the pressure on shareholders, preparation for listing, and the risk of hostile takeovers. May be expensive. Locaweb, which has been listed this time, can be defined as a “middle venture company” that has been in business for more than 20 years, and it will need to be considered as a separate category from a “startup company”.
|Larger and easier funding||Pressure by shareholders to management|
|Stronger corporate governance||Costs to prepare for IPO|
|Higher brand recognition||Risks of acquisition by rivals|
Pros & Cons on IPO
On the other hand, what about M&A? For start-ups, it is a lower hurdle than listing and may be a more realistic exit. There are merits such as (1) there is no complicated preparation such as listing, and (2) large-scale fund procurement is possible even without listing.
Brazilian company’s case of US IPO
XP Investimentos, a Brazilian online broker, previously joined Unicorn, but went public on the NASDAQ market late last year. As a Brazilian venture company, it was listed in the United States after Pag Seguro、Stone、Arco Educação. The market value at the time of listing was estimated to be US $ 14.9B, much higher than Pag Seguro’s US $ 7.8B and Stone’s US $ 6.6B. XP Investimentos has given foreign investors priority while the listing process was implemented in the United States to avoid compliance issues by Brazilian regulators. In addition, while the benefits of an IPO in the United States are generally equity market development and high reputation by investors ”, local analysts also explained that ”The Brazilian market was small for XP Investimentos”.
☆Our further analysis for US IPO by Brazilian ventures (only in Japanese)☆
Implications from the news
With the growth of the Brazilian Internet and e-commerce markets, competition among related companies is increasing. Investing in business development is indispensable to get one step out of the way, and it is natural for ventures / startups to aim for large-scale listing and M & A financing. In particular, listing is a high barrier, especially for startups, so M & A is seen as a more common means of financing and exiting.
Listing on the stock market also means that the business is “monitored” by a wider range of shareholders. Stock prices can also be interpreted as “reports for management systems” from shareholders. In recent years, corporate governance has also been emphasized, and increasing management discipline can be the infrastructure for continuing business over the long term. Locaweb’s ability to differentiate itself in terms of governance as well as technology in its core business is likely to be a key to surviving in the Internet industry, where prosperity rises and falls.
Locaweb´s corporate logo