Interactive Investor

Deezer float will follow IPO rush in London

24th September 2015 11:06

Lee Wild from interactive investor

Deezer's decision to float in Paris is a brave move, but plenty of exciting British companies have the same idea. London could list four of them within weeks.There's an app on my new mobile phone. I had no idea what it was until the company responsible announced this week that it plans to IPO within the next three months. Deezer, a French music-streaming service, is expected to be worth as much as €1 billion when it lists in Paris. And it could certainly do with the cash as it competes with the better-known and richer rivals Spotify, Apple's iTunes and Google Music.

Seven months after taking over at Deezer, chief executive Hans-Holger Albrecht said the company had filed its registration document with the French authorities, the first step towards an IPO on Euronext in the French capital.

"Our contemplated IPO represents a key step in the continued development of our business," said media man Albrecht. "It will help us expand our offering through innovative marketing campaigns, drive deeper distribution through our telecom and manufacturer partnerships, and further improve our product and content to deliver an even better service for our listeners."

Deezer currently brags of signing up 6.3 million subscribers by June this year. They're able to browse over 35 million tracks and 40,000 talk shows and podcasts. Last year, that generated revenue of €142 million, up 53%, and Albrecht is reported to have claimed the loss-making company will break even on a monthly basis within three years.

There's still a huge gap to Spotify, which claims 75 million active users, including over 20 million paid subscribers. But the larger firm, still run by founder Daniel Ek, made an operating loss of €165 million in 2014 as higher costs offset a 45% jump in revenue to over €1 billion.

Spotify has been touted as an IPO candidate for years, yet Deezer, which counts Orange, Universal Music Group and other media giants as stakeholders, looks like beating it to market. And, as pointed out by the New York Post last month, the departure of chief content officer Ken Parks and head of corporate development and general counsel Jared Grusd suggest a stockmarket float may not be imminent.

Given the state of financial markets now, listing anywhere would be a brave move. Volatility remains sky-high and investor appetite for risk assets is on the wane. Indeed, speculation about multi-billion dollar floats by cloud storage giant Dropbox and black cab nemesis Uber has dried up, too.

Deezer has published no financial details, or even hinted at what kind of money it wants to raise, but unless conditions cool down, getting a major float away this side of Christmas would be a remarkable feat.

IPO hopefuls

That, however, has not prevented a handful of companies flagging IPOs on London's main market in the past month. And they'll take heart from On the Beach Group, the online retailer of budget short-haul beach holidays, which listed this week.

It raised £90.2 million - £6.4 million for the company and £83.8 million for private equity firm Inflexion and staff - valuing the business at £240 million. On the Beach priced its IPO at 184p, but the shares are now changing hands for as much as 210p.

Worldpay will certainly like that. The payments processor is looking to raise a colossal £890 million of net proceeds next month.

Last year, it made an underlying cash profit of £375 million on net revenue of £863 million, and in the six months to 30 June a profit of £183 million and revenue of £466 million, both up 13%. Worldpay can now boast a double-digit compound annual growth rate (CAGR) both for the top and bottom line over the past three years.

Private equity houses Advent and Bain Capital will cash in, and chief executive Philip Jansen is poised for a £50 million windfall. All London-based staff will get something.

Elsewhere, insurer Hastings is after £180 million to pay down debt and beef up the balance sheet. Goldman Sachs, which paid £150 million for half the company early last year, will remain a significant shareholder after the float, expected on 25 October. Its IPO listing document mentions a compound average growth rate of 22.6% in operating profit between 2012 and 2014. Last year it made almost £106 million.

Also watch out for Shield Therapeutics early next month. The Newcastle-based wants £110 million to help develop treatments for iron deficiency anaemia and chronic kidney disease.

Fellow drug company Acacia Pharma is tipped to follow. It has already raised £35 million from institutional investors since 2007, and is keen to progress a suite of treatments for cancer patients. Its lead product, expected to undergo phase III trials in the US in the second half of 2016, manages post-operative nausea and vomiting (PONV). Other drugs manage chemotherapy induced PONV, treat xerostomia, or dry mouth, in advanced cancer, and cancer cachexia, or progressive weight loss.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.