According to a November 13 media report, Prosus, which recently saw a healthy return on its investment in Swiggy at the food delivery startup’s initial public offering (IPO), plans to list PayU, its payments and fintech business in India, in 2025. Ervin Tu, the group chief investment officer for Prosus, was quoted in the report as saying that the listing might occur at a valuation between $5 billion and $7 billion.
A renowned media outlet reports that UBS just increased PayU’s valuation from $3.7 billion to $4.2 billion, citing improved trading multiples in the global payments market. Listed in Amsterdam and a member of South Africa’s Naspers, Prosus is regarded as one of the largest long-term technology investors globally.
PayU Was Planned to Get Listed in 2023
Since late 2023, PayU had planned to go public at a valuation of $5 billion to $7 billion. It was permitted to function as a payment aggregator in April after just escaping a 15-month regulatory prohibition on hiring new merchants. For its primary payments function, it faces competition from companies like Walmart-owned PhonePe and Tiger Global-backed Razorpay. PayU also helps small enterprises and consumers get loans.
Rapid Expansion of India’s Digital Payment Market is Attracting Investors
According to Prosus’ 2024 annual report, retail digital transactions in India, one of the world’s fastest-growing digital payments markets, grew 44% year over year in FY24, while payment volume rose 20%.
India is a “pillar” of the Dutch investor’s strategy, according to Tu. “We have great optimism about the future for India and for us.”
His remarks follow the successful market debut of Swiggy, another portfolio business, on November 13. Prosus, which still owns a 25% share in the food and grocery delivery company, claimed in a statement that it had made $2 billion from its investment. Fabricio Bloisi, the CEO of Prosus, stated last month that he anticipates more of the companies in his Indian portfolio going public within the next 12 to 18 months. Among other Indian businesses, it owns shares in Meesho, an online marketplace, and Urban Company, a home services provider.
Sriharsha Majety, the founder and group CEO of Swiggy, stated on the sidelines of the company’s successful initial public offering (IPO) that the Prosus team has been a crucial part of Swiggy’s path to reach this milestone, helping the business at every turn since it started working with it in 2017. Their steadfast faith in Swiggy’s mission has been essential to the company’s success in the quick commerce sector as well as its food and 1P delivery platforms. Swiggy has learnt a lot and garnered useful insights from Prosus’ vast global exposure to the food industry. Swiggy looks forward to strengthening its partnership and leveraging Prosus’ global insights and industry expertise as it continues to develop, expand, and change as a publicly traded company.
One of the most significant long-term investments investors can make is in an initial public offering (IPO). Early on, investors can grow their cash by participating in the company’s growth. However, plenty of examples of companies that made a great first impression on the stock market but eventually bombed or underperformed once their shares were listed.
This is why, before putting money into a forthcoming initial public offering (IPO), it’s crucial to do thorough research on the company. After thorough research, investors will have all the data they need to make a well-informed decision. Now, let’s examine the steps an investor can take to evaluate an initial public offering. There is a long and lonely road ahead of a company that has decided to go public: the path to making an initial public offering (IPO). The regular time frame for an initial public offering is six to nine months.
The business and the investment bank collaborate on creating the prospectus and registration statement. This offer’s most crucial document, the red herring prospectus (RHP), is available to and can be used by retail investors. The document covers all company aspects except the amount of shares offered or the price. The red herring prospectus is an essential document for all enterprises.
The Companies Act states in Section 32:
A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.
A company proposing to issue a red herring prospectus under sub-section (1) shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer.
A red herring prospectus shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.
Upon the closing of the offer of securities under this section, the prospectus stating therein the total capital raised, whether by way of debt or share capital, and the closing price of the securities and any other details as are not included in the red herring prospectus shall be filed with the Registrar and the Securities and Exchange Board.
Issuers and underwriters promote the initial public offering (IPO) using the RHP. It is the most helpful resource for assessing the offer for a retail investor. Included in the paper are the company’s financials and other relevant details. This document also includes all the required disclosures outlined in the Companies Act and by SEBI. You will find definitions of all the main concerns and industry-specific terms here. Perhaps this section isn’t necessary for a thorough analysis of an offer from a sector with which you are already well-versed.
This one is crucial among the prospectus sections. This informs the investors about the intended use of the IPO funds. This is a surrogate for the company’s financial management and an indication of the future of the company. In this part, we describe the industry in which the business works and offer our predictions and forecasts for the future of that industry. This section will describe our business and go over our main activities. It lays forth the process by which the business makes money. This is very important to investors because it lays out exactly what they will get when they buy shares in the company.
Leadership
This section provides information about the company’s promoters, directors, and key management staff. The management team’s competence is a significant factor when investing in a new firm. Consequently, investors pay close attention to this part and try to learn as much about the company’s founders as possible.
Administrative and Miscellaneous Data
Every pending lawsuit that has been filed against the corporation, its promoters, or its directors is listed in this section. As a result, it provides investors with a more comprehensive perspective about the future and the primary emphasis of the company. In this portion, the investor is given the opportunity to put on his microscope glasses and examine each and every item that is discussed in this area.
Generating Interest
The initial public offering (IPO) should be a significant event for the company, similar to the summer blockbusters or Khan tentpole films. The initial public offering (IPO) roadshow is one strategy for getting the word out among investors. Once an initial public offering (IPO) is greenlit, the company’s investment bankers and underwriters go to work. To promote the IPO, they visit key financial centres across the globe. They are known as a “roadshow” since they travel from place to place.
Selecting between Fixed pricing issues andbook-building issues
Two distinct IPO procedures exist. Fixed pricing issues and book-building issues. In a fixed-price issuance, investors are informed of the price at which shares will be sold and allocated.
Alternatively, investors can bid on shares within a 20% range in a book-building offering. Only once bidding is closed is the ultimate price determined. An IPO price band may be as narrow as 20%. This price range is open to bids from both retail and institutional buyers. All investors have access to the book, a compilation of all the bids received for the initial public offering. That is to say, all present and future investors have access to the demand for the shares offered at different prices.
The IPO floor price serves as the minimum acceptable bid and sets the upper limit of the price range. The band’s upper limit, the IPO cap price, also prevents it from becoming higher.
Typically, the book is open for three days, during which time bidders have the opportunity to alter their first submissions. Because issuers can learn more about demand and pricing during the book-building process, they favour it over fixed price issues. So long as the market is prepared to give the value the issuer believes the issue is worth, the issue can proceed. The cut-off price is the final selling price of the issue. This is the maximum possible selling price for all the shares being offered.
The last step is to sell the issues on the primary market and collect the funds from the investors. Typically, there is a five-day workweek for the bidding process. The allotment of IPO shares is done within a 10-day window following the end of the bidding round. When an initial public offering (IPO) is oversubscribed, the shares are proportionally distributed among the applicants. Consider a scenario where the number of oversubscribed shares is four times the permitted amount. Then, out of 10 lakh shares, only 2.5 lakh will be allocated.
FAQ
What are investors most likely to look for in an IPO?
Investors look for strong financial performance, growth potential, and a capable management team in an IPO. They also consider market conditions and competitive advantages
How do you predict an IPO?
To predict an IPO, analysts evaluate the company’s financial health, industry trends, and market conditions. They also consider growth potential and investor sentiment.
What is the main indicator of successful IPO?
A successful IPO is marked by a significant rise in share price on its first day, indicating strong investor demand. Other signs include high trading volume and meeting post-IPO performance goals.
CarDekho, an online marketplace for cars, is supposedly in advanced talks to choose merchant bankers for its planned IPO, which is expected to take place early next year. A media report stated that CarDekho might decide on the bankers’ appointment for the public issue as early as next week.
The business wants to fund close to $500 million, or roughly INR 4,100 crore and intends to file its draft red herring prospectus (DRHP) in March 2025. A key component of the IPO is anticipated, with a valuation goal of $2 billion to $2.5 billion.
Expansion Plans
The net revenues from the IPO will be put towards CarDekho’s planned acquisitions to broaden its service offering, as well as its further geographic and category expansion. A portion of the holdings held by early investors, such as Peak XV, Google Capital, and Hillhouse Capital, will be sold during the offer for sale (OFS) portion of the IPO.
With an estimated worth of $2 billion to $2.5 billion, the IPO would almost double its prior valuation. CarDekho has contemplated going public before; in 2021, the business discussed an IPO, but it never happened.
In order to oversee the prospective IPO, CarDekho earlier this year named Neelesh Talathi, a former executive of Mensa Brands and Pepperfry, as its group chief financial officer. CEO and co-founder Amit Jain stated in January that CarDekho planned to become profitable for a minimum of four to six quarters prior to going public.
Financial Status
Amit Jain and Anurag Jain launched CarDekho, an app-based vehicle listing platform, in 2008. The business also manages the financing website Rupyy and the insurance platform InsuranceDekho. CarDekho, which competes with CarTrade, Spinny, and Cars24, has raised more than $692 million in funding to date. The business raised $250 million in a combination of primary and secondary capital in 2021, when its valuation was last estimated at $1.2 billion.
For the fiscal year 2022-2023 (FY23), CarDekho Group recorded operating revenue of INR 2,331 crore, increasing 1.5 times from INR 1,600 crore in the prior fiscal year. Nonetheless, losses in FY22 rose slightly to INR 562 crore from INR 535 crore.
The announcement of CarDekho’s IPO intentions coincides with an increase of Indian firms looking to go public. Up to ten new-age digital businesses have gone public this year, including FirstCry, Go Digit, Ola Electric, and Awfis.
Ola Electric, headed by Bhavish Aggarwal, is speculated to conduct its highly anticipated initial public offering (IPO) as soon as the first two weeks of August.
An Indian electric two-wheeler supported by Japanese investor Softbank is reportedly aiming to raise $740 million through a mix of a new offering and an initial public offering (IPO), with a post-money valuation of $4.25 billion to $4.75 billion in mind, according to a media agency’s report.
SEBI’s Approval
Last month, the Securities and Exchange Board of India (SEBI) gave Ola Electric the green light to launch its INR 7,250-crore initial public offering (IPO). On December 22, 2023, the IPO’s draft red herring prospectus (DRHP) was sent to SEBI.
An offer for sale (OFS) of INR 1,750 crore and a fresh issue of INR 5,500 crore are expected to be part of the IPO, bringing the total to INR 7,250 crore. According to the DRHP, 95.19 million OFS shares were going to be sold by current shareholders. With the combined sales of 47.89 million shares, initial investors such as AlphaWave, Alpine, DIG Investment, Matrix, and others will contribute to founder Bhavish Aggarwal‘s 47.3 million share projection.
The goal of the public offering for the Bengaluru-based company is to reach a valuation of $6 billion. The initial public offering (IPO) will allow Ola Electric to launch the Ola Gigafactory initiative, which will produce electric vehicles, batteries, and other components with a large-scale production capacity of 100 GWh.
How This Move Will Change the Dynamics of the EV Sector?
With the potential to attract more investments and promote innovation, Ola Electric’s IPO might be a game-changer for the Indian EV market. More money will come into the electric vehicle market in India after the IPO, which is expected to attract a lot of interest from investors both at home and abroad. Greater investment has the potential to speed up R&D, which could lead to better electric vehicle (EV) infrastructure and technology.
The Indian EV market may see a rise in competition as a result of the IPO. Both long-standing businesses and young companies might step up their game to gain a larger slice of the market, which could lead to more innovation and cheaper prices for shoppers.
Pricing may become more affordable as a result of increased production-related benefits of scale and increased levels of competition. Because of this, a higher number of individuals would be able to explore electric scooters as a more accessible and practical alternative.
The year 2005 saw the launch of Reddit, an online community and message board. Over 100,000 distinct neighborhoods/communities (Subreddits) make up Reddit’s infrastructure; each has its own lingo, culture, customs, and set of rules—written and unwritten alike. In these communities, people build their own neighborhoods and also moderate it to make sure it stays secure, lively, and, most importantly, authentic to who it is.
At present, Reddit ranks as both the seventh most popular social networking platform and the sixteenth most viewed website in the world. The ability to publish anonymously is the site’s main selling point since it promotes honesty and openness.
Being the first US-listed social media firm in the last five years (since Pinterest’s launch in 2019), it’s sure to be a widely watched initial public offering. After a long absence of tech IPOs, investors and entrepreneurs will be keeping a close eye on this one to see whether it will revive the market for initial public offerings.
According to sources close to the situation, Reddit’s first public offering is four to five times oversubscribed, which increases the likelihood that the social media network will achieve its $6.5 billion valuation target.
Although the oversubscription does not ensure a successful stock market debut, it does indicate that the company is well-positioned to achieve its target price range of $31 to $34 per share when pricing the initial public offering.
Reddit CEO Steve Huffman on IPO debut: The best investors of Reddit are people who use Reddit
Reddit has been an integral part of the social media landscape since its 2005 inception. One of the most recognizable trademarks on the internet is its famous logo, which features an extraterrestrial against an orange backdrop.
“The sublime to the ridiculous, the trivial to the existential, the comic to the serious” are just some of the subjects that can be discussed on its 100,000 online forums, called “subreddits,” according to co-founder Steve Huffman. According to Huffman’s letter, he sought assistance from one of the subreddits in order to stop drinking. Similarly, in 2012, former US President Barack Obama conducted an interview with the site’s users called an “AMA” (“ask me anything”).
In 2021, members of the company’s powerful communities gained notoriety for their involvement in the “meme-stock” scandal, in which a number of individual investors pooled their resources on Reddit’s “wallstreetbets” forum to purchase shares of heavily shorted firms, including gaming retailer GameStop.
Worldwide Visits to Reddit.com From July to December 2023
A Flimsy Business Projection
Contemporaries like X (formerly known as Twitter), Facebook (META.O) by Meta Platforms, and opens new tab have been more successful than Reddit, despite the cult-like status of its supporters.
In a previous filing, the firm claimed to be “in the early stages of monetizing (its) business” and to have never made a profit.
For the three months ending December 31, 2023, Reddit reported an average of 73.1 million daily active “uniques” (users who log in at least once per day).
Another issue that advertisers have pointed out is the company’s lax approach to content management.
In order to keep the forums free of inappropriate material, it depends on volunteers from its user base. In 2023, a number of moderators resigned in protest of Reddit’s intention to charge outside app developers for data access, but they are free to resign at any moment.
Reddit Is Also Trying to Regulate AI to Help It Grow
Another way Reddit plans to make money off of its platform is by selling licencing its content rights to companies who use it to train AI models. Last month, a renowned media house reported that Google and Reddit had signed an agreement to use Reddit content to train Google’s huge language models. The transaction is worth $60 million per year.
But even that income isn’t without its doubters. Last Monday, Reddit announced that the FTC is investigating its licencing practices for user-generated content.
“Given the novel nature of these technologies and commercial arrangements, we are not surprised that the FTC has expressed interest in this area,” a regulatory filing from Reddit stated. “We do not believe that we have engaged in any unfair or deceptive trade practice.”
Even more so in the beginning, IPO stocks can be somewhat unpredictable. Redditors, the name given to both users and moderators on the platform, were allotted around 8% of the 15.3 million shares that were issued during the IPO. There will be no lockup period for those users; they can sell whenever they want, according to the Reddit post.
FAQs
What is Reddit?
Reddit is an online platform enabling users to share links or text posts encompassing various content types, including images, videos, news articles, and discussion threads, fostering a vibrant community-driven experience.
Who are the founders of Reddit?
Reddit was founded by Steve Huffman and Alexis Ohanian, and Aaron Swartz in 2005.
When were subreddits created?
The feature of commenting on posts was introduced several months after Reddit’s initial launch, while users gained the ability to create their own subreddits in 2008.
Brainbees Solutions, the parent company of omnichannel retailer FirstCry, has submitted its draft red herring prospectus (DRHP) with plans to raise ₹1,816 crore through the issuance of fresh shares and an offer for sale of more than 54 million shares. The Pune-based company intends to utilize the raised capital for establishing new stores and warehouses, as well as facilitating international expansion. Despite being valued at under $3 billion in the private market, the company is anticipated to launch its public issue at a valuation of approximately $4 billion.
Notably, existing investors such as SoftBank Vision Fund led by Masayoshi Son, Premji Invest, Mahindra Retail, and TPG Growth, among others, will divest a portion of their shares in FirstCry. In addition, all four co-founders of FirstCry will also sell part of their stakes to new investors through the offer for sale, with the proceeds not contributing to the company’s funds.
Ratan Tata is set to sell nearly 78,000 shares, while SoftBank plans to sell 2 crore shares, Mahindra Retail 28 lakh shares, and Premji Invest will offload 86 lakh shares, as revealed in the filings. Currently, SoftBank and Premji Invest hold 25.5% and 10.36% of FirstCry, respectively, with SoftBank being the sole investor possessing more than a 15% stake in the company.
CEO Supam Maheshwari has also diluted his holding, reducing from about 8.15% a year ago to 6%. The remaining co-founders – Sanket Hattimattur, Amitava Saha, and Prashant Jadhav – own 0.58%, 2%, and 1.44% of the startup, respectively.
Additional selling stakeholders encompass PI Opportunities Fund, NewQuest Asia, Apricot Investments, Valiant Mauritius Partners, TIMF Holdings, Think India Opportunities Master Fund, and Schroders Capital Private Equity Asia. The funds generated from these transactions are earmarked for several purposes, including the establishment of new contemporary stores and warehouses in both India and Saudi Arabia. Furthermore, the funds will be allocated for lease payments related to existing stores, acquiring a supplementary stake in indirect subsidiaries affiliated with GlobalBees Brands, financing marketing and technology expenses, and supporting inorganic growth initiatives.
FirstCry has indicated the possibility of exploring a private placement of equity shares for specific investors, with a potential infusion of up to Rs 363 crore, as outlined in the filing. If the pre-IPO placement materializes, the funds raised will be subtracted from the fresh issue, with the total amount not exceeding 20% of the overall size of the fresh issue.
The company boasts in-house brands such as BabyHug, CuteWalk, Pine Kids, and Babyoye. Its comprehensive omnichannel approach encompasses 80 warehouses and stockists spread across 47 cities in India, boasting a cumulative capacity of 3.07 million sq ft to support 936 modern stores. Among these, 615 stores operate under franchise ownership, while 321 are directly owned and operated by the company.
For the efficient execution of its expansion strategy, FirstCry plans to allocate Rs 357.2 crore from the net proceeds. These funds will specifically be channeled into capital expenditures for fit-outs, inventory costs, and security deposits, facilitating the establishment of 483 new stores in India by the fiscal year 2026-27.
The book-running lead managers for the IPO are Kotak, Morgan Stanley, Bofa Securities, JM Financial, and Avendus, with Link Intime India Private Limited serving as the registrar of the offer.
Although the specific dates for FirstCry’s IPO subscription have not been disclosed in its DRHP, various media reports suggest that the public issue is anticipated to open in early 2024. Details such as the offer price and IPO price band are yet to be announced.
Established in 2010 by Maheshwari and Amitava Saha, the company initially commenced operations as an online baby care brand but swiftly transitioned to an omnichannel strategy, mirroring the approach of many direct-to-consumer entities. Despite experiencing consistent revenue growth, FirstCry encountered ongoing losses over the years. In the past decade, the company managed to achieve brief profitability in FY21, attaining a profit of Rs 216 crore.
FirstCry Financials
However, the financials for FY23 reveal a substantial six-fold increase in losses, reaching Rs 486 crore for the year. This escalation in losses occurred despite a twofold surge in sales, with the company reporting revenue from operations amounting to Rs 5,632 crore during FY23, more than double the Rs 2,401 crore recorded in the preceding year.
The expenses for the year exhibited a notable 146% increase, rising from Rs 2,568 crore in FY22 to Rs 6,316 crore in FY23. Virtually every cost component experienced a significant uptick for the company during this period.
According to the DRHP, FirstCry primarily contends with organized entities in the Indian Childcare Products market. This includes horizontal online platforms like Amazon, Flipkart, and Meesho, as well as vertical online platforms such as Hopscotch, Myntra, and Ajio. Additionally, it competes with multi-brand and exclusive retailers like Reliance Trends and Gini & Jony. Notably, there are no significant organized specialty vertical multi-channel players in India’s Childcare Products market.
A RedSeer Report indicates that India boasts the largest population of children globally, with approximately 309 million children under 12 years of age as of July 1, 2022, and a birth rate of 16.4 births per thousand people in the calendar year 2021. Despite the current nascent spending per capita on childcare products in India at ₹7,975 in the calendar year 2022, it is projected to grow rapidly, with an estimated CAGR of around 15% from 2022 to 2027. This growth rate surpasses that of mature markets, such as the USA (3%) and China (7%), as outlined in the DRHP.
FirstCry acknowledges potential risks in its future endeavors, highlighting concerns about expenses related to marketing, expansion, retail distribution, and stock options that could adversely affect its financial condition.
The DRHP explicitly states, We cannot assure you that we will continue to grow our customer base at this rate or at all in the future. Further, if we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to maintain or increase our revenues or grow our operations.
Ever wondered what Reverse Merger means, even though it appears all over the internet? Well, in simple words, it is nothing but a private company holding ownership over already public companies. In this way, the private stocks and assets are now available to the general public.
To understand Reverse mergers thoroughly, one has to understand what IPO means. Initial Public Offering or IPO is a process of offering a private corporation’s share to the public in a new stock issuance.
Here both the private, as well as public parties, are benefitted, such that, Private investors obtain shares through the primary market, whereas, public investors get a chance to be a part of this globalized offering.
To understand Reverse mergers in-depth, shall we dive in deeper? A reverse Merger is also known as a Reverse Takeover or reverse IPO. It is one of the efficient ways in which a private company can go public and monetize its share effectively.
To put it in more simple words, this process is a blessing in disguise for a weaker or smaller company, that wants to acquire a bigger company. Similarly, it is a reverse merger, when a parent company merges with its subsidiary, or when a company that is losing money acquires a company that is profitable. So, in order to enjoy these perks, a few processes are to be undergone, which are listed below:
Identification of a Suitable Shell Co.
Recruiting Financial Staff
Financial Audits
Transaction Documents like a letter of intent, agreement, super 8-k
Issuance of Stock Certificates
Advantages of Reverse Merger
A simple process
A reverse merger is quite a simple process compared to IPO. It takes only a few weeks for a company to become public without raising capital under this process. Meanwhile, IPO does take a lot of months to complete the merging process, but, in the case of reverse mergers, it can be done within thirty days. And for its time and safety management, several companies prefer reverse merging to IPO.
Less risk
IPO is an uncertain process, which cannot assure that a company will go public in the end. However, a reverse merger can promise you that. Because, whenever, stock market conditions fluctuate, the time invested by the managers associated with IPO, in the deal also extends until a favourable outcome is ensured. Accordingly, a reverse merger is a time-saving process, so eventually, it will take down the risk of non-use.
A less reliant on the market
IPOs are considered to be a combination of the public offering and the capital raising function. By virtue of reverse mergers being the only mechanism for converting private companies into public companies, the process is less dependent on market conditions (because the company does not need to raise capital).
In a reverse merger, market conditions are not relevant since the offering is simply a conversion mechanism. In other words, the process attempts to capitalize on the benefits of being a publicly-funded organization.
Perks of a public company
Public companies have a high amount of revenues, which in turn is a key feature to consider converting into one. Over and above, the company’s securities then enjoy higher liquidity when they are traded on an exchange.
By gaining the opportunity to sell their interests, the original investors have a handy exit option other than having the corporation purchase back their shares. Since management may now issue extra shares through secondary offers, the firm has better access to the capital markets.
If stockholders had warrants, which give them the power to buy more shares at a certain price, exercising those rights would bring more money into the firm.
Disadvantages of Reverse Merger
An extensive investigation is needed
It is important to go through every nook and corner of the private and public companies before starting the merging process. Starting from looking into their motives to checking whether the company is neat and clean, pending liabilities, or other things that might disturb the merging. It is therefore imperative to conduct appropriate due diligence and to expect transparent disclosure (on both sides).
Dump of risky stocks
After the merger, the stock price may or may not suffer significantly if the public shell’s shareholders sell a sizable amount of their shares. So it is a must-need merger agreement to have clauses defining necessary holding periods, subsequently, lessening or completely eliminating the possibility that the shares will be dumped.
Insufficient demand shares
There is no assurance of the investors obtaining sufficient liquidity after the merger. Due to financial and operational crises, sometimes, small companies may not be ready to be in public.
In the wake of the reverse merger, the original investors may find that their shares are little in demand. Therefore, a company itself needs to be financially and operationally attractive to be a desirable investment to potential investors for its shares to be worthy.
Regulatory and compliance complexities
Inexperience managers sometimes can harm a potential private company’s journey to a publicly-traded company. In other words, when managers spend a great deal of time on administrative concerns rather than running their businesses, they can result in a stagnant and underperforming company.
In 1994 Godrej Soaps, a consumer product manufacturing business did a reverse merger with its loss-making subsidiary unit ‘ Gujarat Godrej Innovative chemical’ and named it ‘Godrej Soaps Ltd’.
ICICI Bank, India
ICICI merger with ICICI Bank
Only a few Indian companies have used the reverse IPO, making the reverse merger concept relatively new to India. In 2002, ICICI became the first firm to choose a reverse merger when it merged with its arm company, ICICI Bank, and renamed the combined entity ICICI Bank. ICICI also had two subsidiaries, ICICI Personal Financial Services Ltd. and ICICI Capital Services Ltd.
In order to offer both urban and rural consumers a wide variety of loan services, the ICICI group made the decision to do a reverse turnover. As a result, we could see the new venture’s profitability. ICICI Bank is now among the top financial institutions around the globe.
IDBI Bank
In 2005, the Industrial Development bank of India followed the reverse merge method with its commercial bank IDBI Bank.
IndiaBulls
Indiabulls merger with Indiabulls Housing Finance
Later in 2013, Indiabulls financial services Ltd consolidated capital with its subsidiary Indiabulls housing finance Ltd
REO Motor Car Company
REO merger with Nucor
Ransom E. Olds created an automotive manufacturing firm in 1905; by 1907, it had $4.5 million in total sales and was regarded as one of the richest automakers. The corporation itself turned into a tax loss carryover following the great depression that hit Western nations, and the company’s dissident shareholders coerced it to perform a reverse turnover in order to secure a respectable revenue by buying a minor publicly-traded company called Nucor.
New York Stock Exchange
NYSE merger with Archipelago Holdings
One of the world’s oldest and largest stock exchanges, which is situated on Wall street, New York city since 1792. NYSE had a reverse merger with Archipelago Holdings to go public in 2006.
Aerospatiale
Aerospatiale merger with Matra
Launched in 1970 and operating as a State-owned corporation until 1998, Aerospatiale is primarily known as an aerospace and defense manufacturing company. In order to reclaim its previous status in the market—that of a public limited company—Aerospatiale reverse-merged with Matra’s defense division to create Aerospatiale-Matra.
ValuJetAirline
ValuJet merger with AirTran
An airplane manufacturing company established in 1992 that regularly operates international flights in the eastern United States and Canada. The company experienced many aviation crashes in 1996, which contributed significantly to the company’s downfall. The following year, the corporation bought a tiny company called AirTrainAirways and renamed the new company “AirTrainAirways” to increase its customer base again.
US Airways
U.S Airways merger with America West Airlines
It was founded in 1937 and ceased its operation after the airline company went insolvent in the early 2000s. Later, the government filed for ‘chapter 11 bankrupt’ permitting the airline to reorganize. That’s when American West Airlines was acquired with the goal to remove the chapter 11 bankruptcy in 2005.
ABC Radio
ABC merger with Disney
American Broadcasting Company was an American radio network that was reverse merged with Citadel Broadcasting corporation to spin off its former parent- Disney in 2007.
CBS Radio
CBS merger with Entercom
One of the renowned news radio networks, which was launched in 1928 has more than 1000 radio stations in the United States of America. In February 2017, CBS acquired a majority of shares in Entercom and acquired it for the purpose of spinning off its former parent CBS radio.
T-mobile US
T Mobile merger with MetroPCS
It is an American public wireless telecommunication corporation, which is owned by its parent German telecommunication company- Deutsche Telekom (DT). Later, the company had a reverse IPO with MetroPCS, an American prepaid wireless service provider.
VMWare
VMWare merger with Dell
It is an American cloud computing and virtualization technology company, founded in 1998 by Mendel Rosenblum, Diane Greene, Scott Devine, Ellen Wang, and Edouard Bugnion. VMWare did reverse turnover with Dell, an American technology enterprise for a price with a plan to be back as a public company in the stock market.
Eddie Stobart
Eddie Stobart merger with Westbury Property
Eddie Stobart commenced as an agricultural business in the mid-19th century, which was later turned into the largest privately-owned transport & distribution company by William Stobart and Andrew Tinkler in 1976.
Eventually, the company demerged with two separate public enterprises- Stobart Group and Eddie Stobart Logistics to function their operations under one company ‘Eddie Stobart Logistics’.
In 2007, Westbury Property fund purchased Eddie Stobart Logistics for £137.7 million: £62 million in cash and £76 million in new Westbury Property Fund shares that made Eddie Stobart gain stock market listing.
Fisker Inc.
Fisker Reverse merger with Spartan Acquisition
Recently, in 2020, the famously known American electric vehicle automaker which was established by Henrik Fisker and his wife Geeta Gupta Fisker in 2016 decided to go public after reverse merging with Spartan Acquisition corporations.
What is one common thing among the founders of famous companies like Google, Ford and Facebook that allows them to have complete control over the decision-making of their companies? The answer to this question is dual-class shares.
I know you are very confused about what dual-class shares are and what advantages and disadvantages they offer to the founders. Don’t worry I will explain to you about dual-class voting shares in great detail without technical jargon. We will also talk about companies with dual-class stock structures.
In dual-class shares, the founders own a small portion of the company’s total stock but they have the maximum voting power. For example, a company may issue class A and class B shares. Both these shares may have different voting power and dividend payments.
In this scenario, class A shares which have limited or no voting rights are offered to the general public while class B shares which have the maximum voting power are offered to the founders, executives, and family.
Why Dual-Class Voting Shares are Used?
Founders who want to enter the public equity markets for financing but want to gain full control over their company opt for dual-class stocks. Using this strategy founders can focus on their long-term vision. They don’t have to worry about their investors who just want profits.
Famous Examples of Companies That Use Dual Class Structure
Google
Alphabet subsidiary Google issued two classes of shares in 2004. Here, class A was offered to the general public which carried one vote per share. Although Class B which was offered to the founders carried 10 votes. Later, the company issued class C shares that had zero voting rights.
Ford
The Ford family has also issued two classes of shares: Class A and Class B. The family owns the class B shares which gives them 40% of voting power with just 5.0% of the total equity in the company.
Facebook
Facebook also follows a dual-class common stock structure. Mark Zuckerberg and his close executives possess class B shares which carry 10 votes. Zuckerberg owns 75% of class B shares which allows him to control 58% of Facebook’s votes.
Advantages of Dual Class Shares
The biggest advantage of dual-class voting shares is that the founders have complete control over the decision-making and functioning of the company.
The company can still get public financing without worrying about giving too much voting power to its investors.
Founders can focus on long-term growth. It protects the company from investors who only want to gain profits.
Disadvantages of Dual Class Shares
Dual-class voting shares give unfair voting rights to their investors.
Super voting rights in the hands of the founders and executives weaken the structure of the company.
The structure of the company cannot be easily transformed into a single class.
A study from the National Bureau of Economic Research provided strong evidence that the company which follow a dual-class structure face more debt than single-class shares.
Shareholders can make bad decisions with few consequences.
Conclusion
As you can see dual-class voting shares allow the founders and insiders of the company to have complete control over the company with limited shares.
Almost every other founder wants to focus on the company’s long-term goals and doesn’t want to allow investors to control the decision-making of the company. That’s why well-known founders are implementing a dual-class structure in their respective companies.
Although dual-class voting shares do have their own cons. The founders and investors should understand the benefits and consequences of dual-class voting shares.
FAQs
What is a dual-class share?
In a dual-class stock structure, a company issues two classes of shares: Class A and Class B where one of the shares have more voting rights than the other one. For example, class A shares which are offered to the general public have one vote per share. While class B shares which are offered to the founders and insiders of the company can have 10 voting rights.
What are the benefits of Dual-class shares?
Since the founders have higher voting rights with a limited amount of stock they can have complete control over the decision-making of the company. They can focus on long-term goals. This protects the company investors who only aim to make profits.
Is it unfair or unethical for corporations to create classes of stock with unequal voting rights?
No, it is not unfair to issue stock with unequal voting right since the company before issuing its shares tells the general public and investors that they will be following the dual-class structure. Investors know all the terms and conditions and are under no obligation to buy the shares.
At one point while growing a startup, every startup founder must have dreamed of is applying for an IPO. Who doesn’t wants some extra funding to grow their startup?. The Indian startup industry is growing at a fast pace. And Many startups are buckling up to apply for the IPO. But why now? Why are so many startups going public in 2021?. Let’s find out
If you are just as curious to know, follow the article
So, you hear this word floating in and out of conversations, much to an extent these days.
Startups are usually founded by one or more entrepreneurs and their company is in its initial stages of business.
These entrepreneurs involved in building startups believe that there is a demand for a certain product or a service and want to make it better by developing it.
The funding for these usually involves getting money from family or friends.
Startups need capital, so they are also on a lookout for backers to invest in them.
What is an IPO?
IPO stands for Initial Public Offering
Companies need capital, so they raise it in the forms of IPO and shares from public investors.
People have a point of view that stock prices increase after an IPO.
Following factors you can consider before going Public
The company has been financially strong for the last three years and is making good profits.
You hear about your company quite often.
The company holds a strong vision.
We are observing a trend here. Not only Indian tech startups are going public, but almost every startup is getting in the waiting list to go public in 2021.
The way for this money is paved to the path of the financial markets, mainly stocks. Now that means many of the giant institutions have plenty of money floating in so that they can invest in. Which leads us to another question: Where? These institutions now have the power to invest in IPOs.
Startups like Zomato, Nykaa, PayTM, Delhivery, some of which have already been made public and some that are gearing to go public, have the intuition that they can catch the interest of these investors.
It is becoming, a regular thing now for public valuations to overtake the private ones. Many people chip in, thinking that what they invest in will see growth in the future. The shares are rapidly growing, so if your startup is waiting to go public. There is no better chance and time than now to grab the opportunity.
Possibilities of recovery
The other part of the story is that many say that with stocks going up to the skies. With the investors and the Indian public pooling in money for the vision, your startup holds even if you have landed into the mess of running into loss. There is a chance of new money coming in. And the value of your startup will be much more than you expected.
Registrations are easier than before thanks to SEBI (Securities and Exchange Board of India)
One of the other reasons is none other than the pandemic itself. It really shook up the world, bringing everything to a halt and slowing down many aspects of our lives. Seeing the stability and growth, the other startups are sure in a hurry to get themselves listed as soon as the pandemic did put a stop to the process. And it would not hurt to take advantage of the situation and accelerate it.
When situations turned worse for most of us due to the Covid-19, and all of us were restricted to our homes with few hopes of breaking the chains and going out, EaseMyTrip managed to sail past the hurdles and made their stock market debut on March 8, 2021.
The journey wasn’t an easy swim on calm waters though!
Covid-19 has turned the tables for all of us and on almost all occasions, it has been for the worse. The period of the pandemic has seen everything including layoffs, pay cuts, dissolution, and liquidation but in the midst of all these horrors, EaseMyTrip, led by the brothers, Nishant Pitti, Rikant Pitti, and Prashant Pitti, launched its Rs 510 crores initial public offering (IPO).
After the co-founders diluted their 25 percent stake, they were set to issue shares worth Rs 510 crore. The company stated they were oversubscribed by 159 times, which put forth a demand of around Rs 44,881 crore. The total valuation of the company stood at Rs 2,040 crore during the IPO, as per the reports.
Prashant Pitti, one of the co-founders of the company made it clear that EaseMyTrip has never been a company that heavily stressed on marketing. “The company was profitable and growing. It felt like a good fit for the IPO”, added Prashant.
Each share was sold at Rs 187 during the IPO, which is now trading at Rs 230. The shares of EaseMyTrip have thus generated around 23% profit for investors within just two months.
EaseMyTrip was successful in making a business of Rs 4,204 crores in the previous financial year. The EBITDA of the company for FY20, as per Prashant, was Rs 49.8 crores, and that for nine months of the financial year 2021 was around Rs 43.4 crores. It was towards the end of 2020, in the month of December that the company’s overall cash or cash equivalent raised to Rs 208 crores from Rs 148 crores in March 2020.
According to Prashant, the company has listed 17 percent of the share amount above the premium, which is still consistent.
Why was this feat hard for EaseMyTrip to achieve?
EaseMyTrip is a company that drives its sales through its wide range of travel booking services including flight booking, booking of hotels, and processing visas. For a company that is based on the travel and tourism industry, the coronavirus pandemic was surely an uphill journey more than ever. However, according to the company, they have been frugal, curtailed a lot of things, went wise with several others, and aimed for the bigger goal to pull off such a feat!
EaseMyTrip Profit
How did EaseMyTrip manage to achieve this feat?
The growth that EaseMyTrip showed during the pandemic might seem unprecedented to most of us but it is simply a result of a lengthy effort for days, months, and years.
EaseMyTrip made a breakthrough in the market
EaseMyTrip, the brainchild of the Pitti brothers was started by the idea of helping people go about their travel bookings seamlessly and bringing parity to the whole booking process.
Back in those days people exceedingly relied on the booking agents to make their booking possible, and ultimately ended up paying more to them. In one such flight booking made by the father of the co-founders, the Pitti brothers discovered that their father paid more to the agent than the actual prices online. This incident led to the launch of EaseMyTrip in 2008.
The Delhi-based online travel agency initially aimed to ensure that the travel agents would receive the same prices and commissions as they did from the other similar booking websites.
Furthermore, they also ensured that the customers would also stay in this loop and would receive the same prices from the booking agents. Moreover, the team also wanted to build a software as a service program that would serve as an easy-to-use webapp that would make travel bookings hassle-free.
While the travel booking agents initially had to pump in some money with each airline to avail of the bookings, they received only around 3-4% commission. However, EaseMyTrip, on the other hand, came up with the idea of letting the travel agents book for any airlines against an initial deposit of Rs 50,000 and allowed a 5% commission on the same. This helped them effectively reduce their capital expenses and increase their profit margins.
Bootstrapping their way forward
As soon as EaseMyTrip was launched, the founders decided to raise money to start with their company, however, the market was found unfavorable soon after that. EaseMyTrip focused on a B2B market, which was something unique in the market that was already full of B2C companies like MakeMyTrip and Cleartrip. This well made EaseMyTrip a competitor to the already established online travel companies and also left bootstrapping as the only option left.
EaseMyTrip bootstrapped their business success as a B2B company, and soon entered the B2C market offering the facility to avail their services without any convenience fees.
Countering the Covid-19-induced adversities
Though EaseMyTrip was a running business well before the pandemic struck the markets, waddling through the pandemic was difficult for any business, and EaseMyTrip was not an exception. However, the company had to win over the situation anyhow, which they managed with the help of some laudable efforts from their end.
Rising up to the dizzying demands
As soon as the lockdown was announced, the government decided to resort to extreme restrictions on traveling, including a dead stop of both the railways and domestic and international air travel.
This resulted in multiplied call volumes. EaseMyTrip also had to abide by the work from home culture and resorted to WhatsApp messages to tackle the overflow of calls, which were then responded to by the executives one by one.
This not only boosted the goodwill of the company during these testing times but also helped in keeping things on a budget.
Early refunds policy
Deeming that the people are scared as well as scattered all across the country, EaseMyTrip decided to refund the money of their customers on a priority basis, even before the airlines refunded them their money.
This immediate refund policy was something really unique and positive responses came pouring in from all around the world in favor of EaseMyTrip all around the social media platforms, which further increased their reputation and added to their credibility.
Wise advertisement campaigns
As soon as EaseMyTrip absorbed the positive vibes, they thought it fit to come up with a unique advertisement campaign on social media, titled “Saath Laakh Crore ka Kharcha”.
The sole motive of the advertisement was to share the message that the Indians spent around Rs 7 lakh crores annually for their vacation. Therefore, they can easily avail of their bookings via EaseMyTrip, which is a 100% Indian company with huge benefits.
For this advertisement, EaseMyTrip had to reach out to 5-6 celebrities but the responses that the company received were overwhelming!
Discounts were curtailed
After the lockdown was lifted for the air travel, EaseMyTrip soon found out the pulse of the customers and discovered that they weren’t much concerned about the discounts and were only looking to make their trips possible. Therefore, the company reduced their discounts and managed to draw in the one percent commission that they received after negotiating heavily with the airline companies.
No pay cut policy
Payment deductions were on a rise with the COVID-19 and are always silent blemishes to a company. Therefore, EaseMyTrip ensured that they would not adopt such practices even if they had to shed some of their total strength. They reduced the total number of employees from 450 to 370 in the first wave of the coronavirus spread but they haven’t opted for any further reductions or pay cuts since then.
The Future Ahead for EaseMyTrip
“People travel for work, leisure, and to meet extended family. All this has stopped now, but it will restart”, going by the words of Sreedhar Prasad, Advisor, Analyst, ex-KPMG, and ex-Kalaari Capital.
Conclusion
The travel and tourism industry happens to be one of the worst affected industries post-Covid. However, the industry would soon rise and will be among the first set of booming industries.
FAQ
Who is the Founder of EaseMyTrip?
Nishant Pitti is the founder and CEO of EaseMyTrip, the company commenced its operation in 2008.
Is EaseMyTrip profitable?
According to a Motilal Oswal, EaseMyTrip is the only OTA in India to have a good net profit margin over the last three years.
Nitin Konde
