Institutional investors anxious not to be left out of this year’s marquee initial public offering helped Snap Inc (SNAP.N) pull off the biggest US-listed technology share sale this week since Chinese e-commerce juggernaut Alibaba Group Holding Inc (BABA.N) smashed records in 2014. Keen to boost returns and with a dearth of new stocks to buy, the IPO of a buzzy social media group was a “must-have” for money managers despite concerns about the company’s strategy, slowing user growth and lack of voting rights for new investors, sources familiar with the offer said.
“Taking a piece of the company is almost a foregone conclusion,” said Evan Pondel, president of investor relations firm PondelWilkinson Inc. Investors’ ardor for Snap shares – which rose almost 50 percent in its market debut on Thursday, giving it a market value of nearly $30 billion – bodes well for future tech IPOs. Although blockbuster names such as Uber Technologies Inc [UBER.UL] and Airbnb Inc are not expected to go public this year, there is a lineup of smaller technology companies preparing to list in the coming months that could benefit from residual investor enthusiasm, technology investors said.
To ensure a successful market launch, Snap’s bankers deployed a common tactic on big tech IPOs: they limited supply. Snap offered only 15 percent of the company to investors, including retail investors and short-term hedge funds, sources familiar with the IPO strategy told Reuters, speaking on condition of anonymity as the process is private. “All this concern about the number of users slowing down – a tech IPO of this sort has nothing to do with the business, nothing,” said Philippe Collard, founding partner at Yabusame Partners, which advises technology startups. “It has everything to do with a financial transaction where you create artificial demand.”
You may also like to watch this video
Hedge funds are famous for buying into an IPO only to sell shortly after, but institutional investors are not above quickly “flipping” a stock if they see an opportunity. However, a quarter of the new offer was subject to a one-year lockup, an unusual stipulation, limiting the amount of churn.