Forbes - iFit's delay and new IPO chills

Kevin Dowd

Staff Writer

October 10, 2021

Big Things

1. The IPO onslaught may be waning

iFit was ready to take on Peloton. The company behind NordicTrack and other home fitness brands had an IPO teed up for this month, with plans to raise nearly $650 million and establish an initial market cap of $6.6 billion. But on Thursday, iFit postponed the offering, citing those three words that represent the great fear of every company on the brink of going public: “adverse market conditions."

Market conditions have been the opposite of adverse for much of 2021. A surging stock market has helped fuel a record-setting year for IPOs, with $155 billion in total IPO proceeds raised so far this year, according to Renaissance Capital—nearly double the previous decade-high.

Hard at work on a NordicTrack incline treadmill. Courtesy of iFit

But the winds could be shifting. In September, public-market indexes posted their worst returns in any month since the start of the pandemic. And the rate of companies cancelling IPOs has ticked up. iFit wasn’t alone this week: Wristwatch retailer Chronext and biotech startup Aeon Pharma also postponed listings. Others, such as Allvue Systems and Knowlton Development Corp., have delayed IPOs in recent weeks. And some of the major IPOs that did go off have underwhelmed, including this week’s debut from fitness chain Life Time Group.

It’s not like the pipeline is drying up. Plenty of other companies filed for IPOs this week that should result in billion-dollar-plus valuations, including GlobalFoundries, Rent the Runway, Udemy, GitLab and NerdWallet. Even if the hottest IPO market in history cools off a little bit, it will still be plenty warm. The point is that the signs of cooling are beginning to mount.

I spoke this week with Reena Aggarwal, who researches markets and IPOs in her work as the director of the Georgetown Center for Financial Markets and Policy. She was quick to point out that this year’s IPO spike isn’t some isolated phenomenon. It’s inseparable from the broader surges in both valuations and deal activity that have occurred during the pandemic across public and private equities.

“The number of IPOs coming in and the valuations that they’re getting, it’s driven by what’s happening in the overall market,” Aggarwal told me.

She outlined some of the key factors driving companies to go public in record-setting droves. Valuations in the public market have soared over the past year-and-a-half. That means wealthy individuals have done well, and now have more money than ever to invest. Yields on bonds remain low, so in pursuit of bigger returns, those individuals are choosing to pump a substantial portion of their pandemic profits back into the stock market—where IPOs offer the potential for some of the biggest returns of all.

“The combination of high valuations in the market, high net worths, low yields on the fixed-income side, it all adds up to a good time for anybody that wants to do an IPO,” Aggarwal continued. “It doesn’t get any better than this."

But “this” might not last much longer. In fact, “this” might already be coming to an end.

“Suddenly, I think market volatility has picked up,” Aggarwal said. “And a couple of factors are driving it: Inflation, supply chain issues, interest rates picking up. And the whole debt-ceiling discussion in Washington. At some point, there has to be a market correction."

Stock markets are funny things. They are, in some respects, the largest and most expensive psychology experiments ever conducted in human history, places where investor sentiment can be just as important as financial fundamentals in driving a company’s outcome. Or, in the case of a company like GameStop, sentiment can be much, much more important than fundamentals.

That’s one way in which this year’s IPO onslaught diverges from the wider avalanche of deals, according to Marc Cooper, the CEO of investment bank Solomon Partners (formerly PJ Solomon). The fact that the market is an amalgam of millions of different investors with a wide range of experience levels can make it a difficult beast to tame.

“The difference in the IPO market is that you get a bit more irrational exuberance than you do from, say, the M&A market,” Cooper told me. “Where you get some of it, yes, multiples are up, but it’s just so far that they’ll go up, because you have pretty sophisticated investors on both sides of the trade. In the IPO markets, it’s the market, right? And the market can do some crazy things."

The market can also follow the crowd. In some respects, the factors causing the market to wobble and investors to delay public debuts don’t really matter. The wobbles themselves can be a self-fulfilling prophecy.

“It’s all about muscle memory, right?” Cooper said. “If the last five deals went up, then they’re going to continue to invest. When the IPO markets stop is when performance is poor. Sort of like what happened in the SPAC market to some degree—performance hasn’t been what people expect, so it slowed down. It’s a natural regulator."

What’s past is prologue. If the IPO hesitancy keeps up, then expect more IPO hesitancy to abound.

And with that, let’s move on to the rest of our recap of the past week...

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2. Icahn vs. Southwest

On the surface, the announcement this week by Southwest Gas Holdings that it would acquire Questar Pipelines from Dominion Energy for just shy of $2 billion looked like just another billion-dollar transaction in what has been a consolidation-filled year for the U.S. energy industry. Look a smidge deeper, though, and there's plenty of intrigue. Southwest announced the deal just two days after receiving a scathing letter from famed activist investor Carl Icahn, in which Icahn revealed he had accrued a 4.9% stake in Southwest and that he was opposed to a potential deal with Questar. But that didn't stop Southwest from proceeding.

Another billionaire has also been involved with Questar: Warren Buffett. Last July, Buffett's Berkshire Hathaway reached a deal to buy all of Dominion's natural gas assets (including Questar) for just shy of $10 billion. The bulk of the deal was completed last November. But the takeover of Questar had ran into regulatory roadblocks, and Dominion and Berkshire ultimately abandoned that chunk of their agreement this July, clearing the way for Southwest to buy the business instead.

3. Rushing to renewables

Everywhere you looked this week, there seemed to be a new investment related to clean and renewable energy. The biggest example came from Japan, where major oil refiner Eneos Holdings agreed to purchase Japan Renewable Energy from backers including Goldman Sachs and GIC for some 200 billion yen (about $1.8 billion). In the western U.S, California's SunPower struck a pact to pay $165 million for Utah's Blue Raven Solar, a fellow solar energy specialist that installs residential panels across a network that spans from Oregon to Florida.

Blue Raven Solar currently offers its residential solar systems in 17 states. GETTY IMAGES

BP, which of course has a very long history with non-renewable energy, announced the acquisition of Blueprint Power, a creator of software and tools that allow large commercial building to become more energy efficient and sell their excess energy to outside power markets. Blueprint also helps skyscrapers manage energy from on-site solar panels. Last but not least, we have Apex Clean Energy, a developer and operator of solar and wind farms, which struck a deal to sell itself to Ares Management, a private equity firm with a long track record of energy investing.

4. Qualcomm's autonomous vision

Qualcomm, one of the world's biggest semiconductor designers, built out its offerings in the autonomous-driving space this week with the acquisition of Arriver, a developer of sensors and software related to computer vision and driver assistance. The takeover is part of a larger and more complicated transaction: Qualcomm and co-investor SSW Partners will acquire Veoneer, the current owner of Arriver, for $4.5 billion in cash. Qualcomm will hold onto Arriver, and SSW will lead a sale process for the rest of Veoneer's assets. SSW is helmed by former Lazard banker Antonio Weiss, who has a history in the consumer sector.

Theoretically, Qualcomm had competition for Veoneer and Arrival. When push came to shove, though, it was really no competition at all. In July, Veoneer had accepted an earlier takeover offer from Magna International worth $31.25 per share. But Qualcomm and SSW's bid of $37 per share was clearly superior, and Magna never made a formal counter. Instead, it will collect a $110 million termination fee from Veoneer.

5. Fundraising variety

It's easy to forget that the modern private equity industry is still a relatively recent creation. As the sector has evolved from its barbarian days in the 1980s, one of its long-running themes has been continued diversification, with firms that once focused on a single market segment broadening their horizons by expanding into new strategies and geographies. That variety was on full display this week, with five different firms closing new funds that will pursue five distinct strategies.

The biggest of the bunch came from Summit Partners, which raised $8.35 billion for its latest fund focused on growth equity deals. Thomas H. Lee Partners pulled in $5.6 billion for a new buyout fund that will pursue the sorts of takeovers the public typically associates with private equity. KKR announced a new $4.3 billion vehicle to make real estate investments in North America. Vista Equity Partners assembled $2.3 billion in commitments for a new credit fund, a sign of the blurring line between private equity investors and private credit investors. And Development Partners International held a $900 million close for its latest fund focused on Africa. We'll have more on that one later this week.

6. Sports bets

We didn't see any major deals involving sports betting this week, which feels like a rarity these days. But we did see investors betting on the broader business of sports in other interesting ways.

A group led by the Public Investment Fund of Saudi Arabia announced a deal to buy British soccer club Newcastle United for £305 million (about $415 million), a takeover that has been in the works for more than two years. It was finally consummated after a thaw in relations between the Saudi government and Qatar, which matters because a Qatari company called BeIn Sports, which is a major broadcast partner of the Premier League, had objected to Saudi Arabia investing in a Premier League club. If that still doesn't make any sense, I wrote more about the saga—including how Saudi Arabia's history of human rights abuses factors in—in Thursday's newsletter.

Crown Prince Mohammed bin Salman, who chairs the Public Investment Fund of Saudi Arabia, is finally getting a foothold in the Premier League. AFP via Getty Images

Elsewhere in the sports world, a SPAC led in part by Billy Beane could be closing in on a merger. The vehicle, called RedBall Acquisition Corp., is in "advanced talks" to combined with SeatGeek, the operator of a secondary marketplace for buying and selling tickets for sports and other live events, according to a Bloomberg report. Beane, the former Oakland Athletics general manager of "Moneyball" fame, is co-sponsoring the SPAC with Gerry Cardinale of RedBird Capital Partners, a private equity firm that focuses on investments related to sports. RedBall previously engaged in ultimately unsuccessful merger talks with Fenway Sports Group, the owner of the Boston Red Sox and Liverpool F.C.

7. A Match for Meredith

InterActivCorp, also known as IAC, is probably best known these days for owning substantial stakes in dating apps Tinder, Match and OKCupid. But the Barry Diller-chaired company also does a substantial business in digital media. And it added to that business in a major way this week, as IAC's publishing unit, called Dotdash, agreed to buy magazine publisher Meredith for $2.7 billion.

Meredith owns People, Better Homes & Gardens, InStyle, Entertainment Weekly and dozens of other media brands that will now operate under the same umbrella as Dotdash's existing holdings, including financial-focused publications Investopedia and The Balance. As you'd probably expect, it sounds like Dotdash and IAC plan to help build out the digital presence for Meredith's suite of brands. From the outside, at least, the sale looks like an admission by Meredith that its $2.8 billion purchase of Time Inc. back in 2018 didn't have the transformative effect or provide the economics of scale that had been hoped for.

8. Boats and trucks

Snarls in the world's supply chains continue to wreak havoc on global trade. We saw a pair of takeover this week involving companies with key roles in those supply chains, as investors continue to hunt for opportunities arising from the seemingly endless market dislocations that have arisen from the pandemic.

In one move, infrastructure investor Stonepeak agreed to acquire Teekay LNG Partners, a major owner of carrier ships used to transport liquefied natural gas, in a deal involving $1.5 billion in equity, with the value climing to $6.2 billion if you include the assumption of debt. The takeover comes as global natural gas prices are spiking, creating a mad scramble across the energy industry. And in a separate transaction, Providence Equity Partners purchased a controlling stake in Tenstreet, the creator of a recruitment platform for the long-haul trucking industry, another sector facing significant shortages. The company says it process 17 million job applications a year on behalf of fleet operators.

9. Hello, Neumann

GoTo Global, an Israeli startup that operates a network of shared cars, scooters, bikes and other electric vehicles in Europe, said that it purchased Emmy, another mobility startup that currently offers electric scooter services in the German cities of Berlin, Hamburg, and Munich. The deal is interesting enough in the context of the continued growth of the electric mobility space. But the intrigue factor is really upped by the presence of WeWork co-founder Adam Neumann, who acquired a reported 33% stake in GoTo last year. Neumann has receded from the spotlight in the wake of his WeWork flameout, but he's remained active in the investment space with a handful of angel deals.

Another startup investor who rose to fame in the 2010s was also in the news this week, as KKR announced the appointment of Evan Spiegel to its board of directors. It's an intriguing choice for what's believed to be Spiegel's first board seat outside of Snap. He's the 11th independent director on KKR's 15-person board, joining names such as former Morgan Stanley executive Robert Scully and French telecom tycoon Xavier Niel.

Things To Read

Tether, which has become a critical piece of the global cryptocurrency trade, is supposed to have $69 billion in real U.S. dollars. So where's the money? An attempt to unravel a globe-spanning crypto mystery—with guest appearances from the Mighty Ducks and Inspector Gadget. [Bloomberg]

Examining the critical and little-known role that AT&T played in turning One America News into a far-right media powerhouse. [Reuters]

A chip shortage is gripping the globe. Which, for Cristiano Amon, made this summer a particularly interesting time to begin his new role as the CEO of Qualcomm. [The Wall Street Journal]

If you want to play for the Texas Playboys, there are no formal tryouts. But there are "vibe checks." A visit to a sandlot in Austin for the story of a baseball team unlike any other. [Sports Illustrated]

In the world of e-commerce, where shipping an oversized and unwanted T-shirt back to where it came from can be more expensive than the T-shirt itself, there's no such thing as many happy returns. [The Atlantic]

A note-taking startup called Notion is now worth $10 billion. It wouldn't have happened without TikTok. [Forbes]

The things Americans want from their work are changing. Will the asset management industry be able to keep up? [Institutional Investor]

Quote Of The Week

"I see current activity as the beginning of a multi-year upward cycle in M&A. What I see is elevated activity for years to come."

-Berthold Fuerst, who helps lead Deutsche Bank's M&A business, speaking to Bloomberg about what he expects to be an extended global boom in corporate takeovers

Kevin Dowd

Staff Writer

I am a staff writer at Forbes. I previously wrote for PitchBook, where I created The Weekend Pitch, a weekly newsletter about the private markets. Before that, I covered high school sports in the Pacific Northwest, and I graduated from the University of Washington with a degree in journalism and creative writing. I live in Seattle, where I read a lot of books and play a lot of golf.

Follow me on Twitter.

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Forbes - iFit's delay and new IPO chills

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