Forbes - Reddit, TPG join the IPO bandwagon

Kevin Dowd

Staff Writer

December 19, 2021

Big Things

Less than two weeks remain in the busiest year in M&A history, and Deal Flow is on the brink of a brief hibernation. This will be the final free Sunday edition of 2021, and the final two editions for subscribers will arrive this Wednesday and Thursday. No newsletter Monday or Tuesday, and we'll be off all next week.

Here's hoping you all manage to find a little bit of peace and quiet in the days to come. Because it sure seems like the deals are going to keep flowing in 2022. Happy holidays, and the heartiest of thanks for reading along.

1. /r/IPO

The front page of the internet is going public.

Reddit revealed on Wednesday night that it has filed for an IPO, news that comes a few months after Reuters reported the company was planning a Wall Street debut at a potential $15 billion valuation.

Reddit is ready for its Wall Street close-up. SOPA Images/LightRocket via Getty Images

The filing will remain confidential for now, and details on the planned listing are scarce. But we don’t need the details to know that this will be a closely watched and long-awaited debut for a company that’s been a fixture in venture capital circles since the second Bush administration. After 16 years and more than $1.3 billion in funding as a private company, Reddit will finally join fellow social media giants like Twitter, Snap and Pinterest as a public one. And after a year in which the /r/WallStreetBets subreddit became a phenomenon and helped spur a frenzy of retail trading, Reddit will soon join that frenzy itself.

There won’t be many notable IPOs between now and the end of the year. But the pipeline for 2022 is looking packed. And it filled up even more this week, as Reddit wasn’t the only major name to make moves toward the public market.

Famed private equity firm TPG also filed for an IPO, this time with a prospectus that’s publicly available. The document shows how the firm has continued to build on an already impressive base in recent years, growing its assets under management from $60 billion in 2016 to $109 billion at the end of this September. It now has five distinct investment platforms with at least $10 billion in AUM, including $52.6 billion in its flagship TPG Capital buyout business, an array of offerings that demonstrates how the private equity industry has matured since TPG got its start in 1992.

Speculation has swirled for years that TPG might make the move from private firm to public entity, following in the footsteps of rivals like Blackstone (which went public in 2007), KKR (2010) and The Carlyle Group (2012). The recent performance of those firms is surely one reason TPG decided to take the leap. Private equity stocks have soared this year, with a huge volume of deals driving huge profits. Carlyle stock is up 67% since the beginning of January, while KKR is up 81%.

It’s a trend that’s already caused a few different private equity investors to go public on the other side of the Atlantic. The U.K.’s Bridgepoint and France’s Antin Infrastructure Partners both conducted IPOs earlier this year. Goldman Sachs, meanwhile, conducted a listing in London for its Petershill Partners unit, which holds minority GP stakes in more than a dozen other private equity firms.

TPG appears to be next in line.

This one might be farther in the distance, but delivery startup Gopuff has begun planning an IPO of its own that could occur in the second half of 2022, according to Bloomberg. To call the company’s recent growth explosive would be to undersell it: Gopuff was valued at $190 million in 2017, $1 billion in 2018, $2.2 billion in 2019, $3.9 billion in 2020 and $15 billion with a new round of funding this July, per PitchBook. And that number could continue to shoot up. Axios reported this week that Gopuff issued a $1.5 billion convertible note led by Guggenheim Partners that could value the company at as much as $40 billion.

Based in Philadelphia, Gopuff is a different kind of delivery company than the likes of DoorDash and Instacart, relying on a network of hundreds of its own small fulfillment centers to house goods rather than buying from other restaurants and grocery stores. But Gopuff has benefited from changing consumer tastes amid the pandemic in the same ways that DoorDash and Instacart have—which goes a long way toward explaining its new status as one of America’s most valuable startups.

The broader IPO market has cooled down in recent weeks from its prior incendiary state, with fewer listings going off and fewer enormous first-week gains. But dealmakers across the financial industry expect things to heat back up in 2022. And the planned listings of Reddit, TPG and Gopuff will only add fuel to the fire.

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2. More medical mega-mergers

The healthcare sector has been home to more than its fair share of this year's biggest mergers and acquisitions. That trend continued this week. In one move, Australia's CSL agreed to purchase Swiss drug developer Vifor Pharma for $11.7 billion, a much higher price than had been expected when reports of deal talks first surfaced. And an even bigger buy could be on the way, as The Wall Street Journal reported on Friday that Oracle is in negotiations with Cerner about a deal to buy the provider of electronic medical records technology for some $30 billion.

That would register as one of the biggest healthcare acquisitions in recent memory, trailing only the planned $34 billion buyout of Medline Industries by Blackstone, The Carlyle Group and Hellman & Friedman. It would also be the second mega-deal in the past month involving a company that specializes in electronic medical records, following H&F and Bain Capital's agreement to buy Athenahealth from Elliott Management and Veritas Capital for $17 billion.

3. Bought for a song

The market for acquiring the song catalogs of major American musical artists has exploded over the past year-plus, with legends such as Bob Dylan, Stevie Nicks and Neil Young all parting ways with the rights to their work in exchange for nine-figure paydays. This week brought the biggest such deal yet, as Bruce Springsteen agreed to sell both his songwriting rights and the rights to his body of recorded work to an unknown buyer, with The New York Times reporting a price of around $550 million.

It isn't only old fogies like Dylan and Springsteen who are drawing investor attention. This week also brought news that Warner Music Group has struck a deal to purchase 300 Entertainment, a record label that boasts a long roster of hip-hop artists including Young Thug, Fetty Wap and Megan Thee Stallion. The deal is worth around $400 million, per Variety, and it could be a prelude to further moves: WMG reportedly raised $535 million in debt funding last month to help finance acquisitions, and the Financial Times reported that the industry powerhouse has been in talks about a potential purchase of David Bowie's song catalog.

A young Boss. Getty Images

4. Termination combination

So many of the major mergers we see these days involve technology that would look like magic to your average resident of the 19th century. But this week also brought a mega-deal that would make sense in any era. Because rats, termites and bed bugs are nothing new.

U.K.-based Rentokil signed a deal on Tuesday to purchase Tennessee's Terminix in a cash-and-stock deal worth some $6.7 billion at the time it was announced, combining two of the world's leading providers of pest-control services. For Rentokil, the move represents a bid to greatly expand its services in the U.S. It also represents an attempt to buy low: Terminix stock was down about 25% over the past five months before this deal was announced. And, finally, it represents a chance to prove the company's current shareholders wrong. Rentokil's stock price declined more than 20% shortly after the deal was announced, signaling some serious skepticism about the Terminix takeover.

5. M&A, explained

The top stories on Vox.com as of this writing include a breakdown of how to prepare for a catching a case of COVID-19 and a personal essay entitled "My father, the white supremacist." The top stories on TheDodo.com include a video of a baby squirrel with its own bench and a corgi with an awkward snuggling strategy. There is probably not a ton of overlap between those intended audiences. But that is perhaps the point of this year's latest example of digital media consolidation, as Vox Media agreed this week to acquire Group Nine Media, a move that will bring together the parent of sites like The Verge, SB Nation and the flagship Vox site with the owner of the Dodo, Thrillist and NowThis to create a combined business that can run the gamut of online offerings.

It's the latest in a string of deals this year involving media brands that have risen to prominence in the 21st century, including Politico's sale to Axel Springer for more than $1 billion and BuzzFeed's underwhelming SPAC merger. And one more major move could emerge in the weeks to come, as Puck reported this week that The Athletic has entered exclusive talks to sell itself to The New York Times.

6. Chip ingredients

The semiconductor industry was already a hotbed of consolidation before a shortage of chips began to wreak havoc on the global economy. And the deals keep coming, as companies in various segments of the sector hunt for new scale and scope.

Entegris agreed this week to buy CMC Materials (formerly Cabot Microelectrics) for $6.5 billion, a combination of two companies that produce specialty chemicals and materials used to fabricate chips. Both have a track record of M&A. CMC acquired KMG Chemicals for $1.6 billion in 2018, and Entegris has made at least a half-dozen acquisitions over the past three years, with targets including Sinmat, MPD Chemicals and the precision microchemicals business of BASF.

Elsewhere in the chip world, we saw a smaller move this week involving Techinsights, a provider of tech analysis and intellectual property services for the semiconductor industry. Oakley Capital agreed to roll over its ownership of Techinsights from its third flagship fund to its fourth, generating an 18.8x multiple for investors in the third fund, with CVC Capital Partners also coming on as a co-investor.

The political importance of the semiconductor industry has become clearer than ever during this year's shortages. Getty Images

7. Smaller footprints

Footprint is aptly named: The company is aiming to shrink humanity's ecological footprint on the earth by building new materials and fibers designed to replace single-use plastics. It's already won over the likes of Conagra, McDonald's, Unilever and Kraft, all of which have begun to transition to Footprint's packaging options. Soon, it will try to win over public investors. Footprint announced plans this week to merge with a SPAC backed by The Gores Group, landing a $1.6 billion enterprise valuation.

One way to shrink our negative impact on the environment is to make products in a more sustainable way. Another is to simply not make real products at all. On Monday, Nike revealed that it has acquired RTFKT, a maker of virtual shoes and other virtual products—what it describes as "metaverse-ready sneakers and collectibles." Don't expect Nike to stop making tangible apparel anytime soon. But this purchase is the latest sign that major fashion and apparel companies are taking the metaverse very seriously as the next frontier for selling their products.

8. Bots and bikes

In the biggest blank-check merger announced this week, warehouse robotics specialist Symbotic agreed to go public by merging with a SPAC sponsored by SoftBank at a $5.5 billion valuation. Based in Massachusetts, the company makes various robotic systems used by major retailers such as Walmart and Albertsons to manage products stored in distribution centers. And more retailers are trying to join in: Symbotic says it has a $5 billion backlog of orders it's working to meet. My colleague Amy Feldman has more on the company and its founder, a 69-year-old grocery tycoon named Rick Cohen.

Another SPAC deal worth watching came from Harley-Davidson, which announced plans to spin out its LiveWire electric motorcycle unit through a merger with a blank-check vehicle. The transaction will generate as much as $545 million in proceeds and result in a $1.77 billion enterprise valuation for LiveWire, which was established as a standalone business in 2019. We've already seen companies making electric cars, electric trucks and electric flying taxis line up SPAC mergers so far in 2021. Now, you can add two-wheeled vehicles to the list.

9. Punch-drunk love

After striking out in its bid to buy the Morrisons grocery chain, Fortress Investment Group finally found a takeover in the U.K.'s food and beverage sector. The SoftBank-backed investment firm struck a deal this week to buy Punch Pubs and its nearly 1,300 locations across the U.K. from Patron Capital, with The Guardian reporting a price of as much as £1 billion (about $1.3 billion). Punch was publicly traded until 2017, when Patron and Heineken acquired and split up its portfolio. The company reportedly owns the real estate underlying more than 90% of its locations. Based on the private equity industry's track record, it wouldn't be a surprise if Fortress were to spin out or sell that land and focus on the operational side of things.

This is the latest in a series of notable deals and would-be deals in the global alcohol industry, driven in part by a surge of sales amid the pandemic. Last month, Heineken bought Distell Group for €2.2 billion (about $2.5 billion), marking a major expansion into South Africa's beer and wine sector. Sycamore Partners deviated from its usual retail strategy to buy Ste. Michelle Wine Estates for $1.2 billion. And early this year, Punch Pubs rival Marston's rejected a takeover bid from Platinum Equity that valued the pub operator at £666 million.

Things To Read

In the face of global chip shortages, semiconductor companies are spending billions to ramp up their manufacturing capacity. In a few years' time, the result might be a global supply glut. [Nikkei Asia]

Thanks to the rapid and controversial rise of Shein and its daily deluge of new products, the world of fast fashion may never be the same. [Rest of World]

A fascinating look at why the Women's Tennis Association decided to do what so few other organizations and companies have: Stand up to China. [Sports Illustrated]

The luster of the SPAC gold rush has long since begun to fade. Blank-check vehicles backed by celebrities are among the biggest losers. [Bloomberg]

A reporter who won the Pulitzer Prize for his writing on COVID-19 explains why he canceled his 40th birthday party this week because of Omicron. [The Atlantic]

The Washington Post experienced surging growth during the Donald Trump administration. These days, though, less chaos in the nation's capital is leading to fewer readers. [The Wall Street Journal]

In the company town of Badin, N.C., Alcoa gave impoverished residents schools, roads and jobs. It also might have given them cancer. [Undark]

Quote Of The Week

"Look at how many billions of dollars that comes to. It's a staggering amount of wealth that didn't transfer to us."

-Longtime McDonald's owner Darrell Byrd, speaking to Bloomberg about a recent series of lawsuits alleging that the fast-food giant has a decades-long history of discriminating against its Black franchisees

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 - Reddit, TPG join the IPO bandwagon

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