IPO World Tour: From Dubai to Hong Kong

Welcome back to The Deal Room, and we are about to go on a world tour. And the reason why is because Stephen and I talk a lot about IPOs, and when we talk IPOs, typically we're talking about the US, the most attractive place to IPO. And we've talked a lot about the US versus London, but surprisingly, there's a whole big wide world out there with lots of other activity going on. So we We're going to go to Dubai. We might stop off, couple of European stop-offs in Germany and Switzerland, perhaps a little dive into Italy, and then we'll go out to the Far East and have a look and finish off in Hong Kong, I think. So, Stephen, looking forward to this one.

Yeah, it sounds great. Unfortunately, we're not going to be doing the roadshow, the in-person tour.

Your PA told me that we were recording each segment on location. I mean— Is that not true?

That would be great. Get on the private jet. But no, no, we are resolutely back in the UK. But yeah, I think this is really important. We do spend so much time thinking about the US and we're so US-oriented, in part because it's the biggest market and it's the most exciting and a lot of stuff happens and it makes waves. But I know that we've got listeners that dial in from around the world and there is more to life than the US. And obviously you and Piers stole my TikTok story, so we decided to do something different. Okay.

So where, where, which location do you want to start in?

Okay. I'm going to start in Dubai. And what I'm doing is I'm using 5 different IPOs to represent and illustrate the stock market and the indexes in those particular countries. And we're going to do it in sequential order. From closest to actual IPO launch to it will launch at some point in the future. So on the 21st of March in Dubai, a company called Parkyn, P-A-R-K-Y-N, is IPOing in Dubai Financial Index. And Parkyn is a company that operates parking spaces. In fact, it's got a 40-year concession to basically have a monopoly over all parking spaces in Dubai. Now, the reason this, which is not bad, has a lovely dividend, very, very stable utility-like cash flows. Dubai has obviously been relatively successful at riding out the COVID wave, and it's suggested that demand for public parking's going to grow by 60% by 2023. So there's more cars on the road, A good story. And how this kind of boiled down to the IPO market. So this is a $429 million IPO raise. There was $71 billion of demand for this IPO. So it was covered a couple of hundred times over. So this is really, so the, obviously the dynamics of an IPO is you say, this is how much I want to raise. You go out and bookbuild and hope that you can cover the book a couple of times over. And there's a nice bit of demand. You can maybe price it at the higher end of the range, but this is $71 billion of demand for a $429 million IPO, which is crazy.

So, so what in that scenario then, what happens when there's like super excessive demand, what's the play thereafter, both for the company IPOing and also the bankers thinking of their commercial benefit out of running this deal?

Yeah, it's interesting. I mean, it will be allocated based on levels of initial commitment from the investors, based on speed of commitments and maybe some other preferential treatment or rules with regards to who gets access to that $429 million. I think it's obviously a success from the banker's side of things, and one would expect that the share price might go up as previous examples in Dubai have shown. So last year, Dubai Taxi floated. $315 million float, $41 billion worth of orders, and their share price is up 30, 40% as a result after the IPO. So there's some, there's a lot of good news going on here, and it's really interesting again to kind of take yourself out of the US and think, all right, why is Dubai an attractive place to put money? So why is there $71 billion of demand for a $429 million IPO? The first, this is a really, really solid company with locked-in cash flows and dividends for the next 40 years. The second is there's been a hell of a lot of oil money that has been generated that needs to go somewhere in the Middle East and in that region. So it's going to go on things like new IPOs. And thirdly, because the market has been so depressed for IPOs around the world, over the last couple of years, if there's an active market with some good companies listing, you're going to get international fund flows into Dubai and into these companies. Hence that $71 billion for a $429 million IPO. Just a little bit on the stock exchange in general. So the index that you would want to track if you're looking to Dubai is the Dubai Financial Market General Index. And the Dubai Financial Market General Index is up 22% in the last year, 6% already this year. So not quite S&P levels. S&P's up 8% this year, 32% over the last 365 days. The biggest constituents of the Dubai Stock Exchange, Dubai Electricity, 33 billion. Followed by Emirates NBD Bank with a $30 billion market cap. And actually Emirates NBD Bank was on the ticket for the Parkin IPO alongside HSBC and Goldman Sachs. Always interesting, by the way, to look at the IPO and think, all right, this is in a region. There's usually a US bank involved, but there's often a local bank. To represent that country and represent the investors in that country.

And so in terms of the, from the people participating in this, so when you are buying into this company, I get it, you're buying into stability, cash flow, and all these sorts of things, utility kind of dynamics that it has. So what's the, I mean, with car parks, I just think the growth story of that— I know we're not talking, we're talking the opposite end of the spectrum there, but we're like, how long do you hold this investment? I mean, is it one of those things where it just sits there within the mix to balance out the overall portfolio of your holdings, or is it a case of, um, you kind of— what's the time for it? Like, a car park seems quite, quite static. I guess like an airport it can't grow that quickly because it's dependent on infrastructure and other things.

Yeah. You want, in a nice portfolio, you want some of these companies and then you want some of the high growth companies. And a good way to represent this is again, comparing the S&P 500 to the FTSE 100. You invest in the S&P 500 for share price growth because they're exciting growth companies. You invest in the FTSE 100 for dividend yield. Because they're boring stable companies. And actually, even though the FTSE 100, you say, oh gosh, the FTSE 100's down this year. Well, it's not down when you take into account dividends, right? So you want to have this nice balanced portfolio. If I was getting in on Parkin, who by the way, have guaranteed to pay a minimum dividend of either 100% of profits or free cash flow to equity, right? Because they don't need to do any investing, right? It's just car parks. So I'm like, all right, I can project this thing out like a utility, like a fixed income instrument. I can project this thing out and just hold it knowing that I'm going to get this sweet dividend. I don't care if the share price goes up. Well, I want it to stay roughly stable, but that's the way that you'd be thinking about this type of company. Very different from your sexier US, you know, the Arms of this world or the Nvidias or whatever it might be.

And what I'm guessing that there is no competition because it, even though it would be allowed, it's not going to get allowed.

So, and this, yeah, this, and this is all part of the Dubai Investment Fund's plan that they announced in 2021 to list up to 10 of their state-owned monopolistic companies. So Dubai Taxi was one.

Monopolistic companies.

Look, you know, it's perfect. They, they own the market and it's very, and it's very clear and, and there's no, there's no animal spirits or massive competition. It's just the way it is in, in, in Dubai and in the UAE. So, so it's not a, it's not, it's a very, again, this is why we're doing this tour of the world. It's a different dynamic. It's very different from the US. You wouldn't get that monopolistic car park ownership structure anywhere in the US, right?

Is it as easy— again, my naiveness to this— but if I'm a fund manager, can I just have— go to different geographies in order to get that mix? Because I'm just thinking, okay, I get the theoretical side of risk differences between those two different entities, the growth versus the utility types, but what about then I mean, there's geographic differences though in terms of risk factors. If I was going to invest then growth, Mag 7.

Yeah.

And then I go, right, Middle East in terms of Dubai for my, my cash cow. Like, is that even possible to have that investment?

Yes, it's, it's, it's, it's possible to have that remit. There are, you know, fund, uh, theses and fund guidelines will restrict where you can and can't invest. And it's probably unlikely that there'll be a fund that is kind of US growth plus Dubai stable. And I think the biggest risk, you know, it's all well and good and it sounds like we should all get in on the Parkin IPO. Hey, again, it's quite hard necessarily to get involved in these stock markets as a retail investor, but also there's massive exchange rate risk. There is country risk, you know, that kind of stuff is the reason why we don't pile in more because we just have less stability over or less foresight over what that currency's going to do and what that country's going to do.

Okay. Well, look, let's leave the hot climate of Dubai and go to Frankfurt in Germany. So what's happening in Frankfurt?

Yeah, so Frankfurt, this is a company called Douglas, which I think is a great name for a perfume retailer. I don't really know what's going on. Oh, Dougie. No, it doesn't kind of have that allure. Anyway, so Douglas is IPOing on the 21st of March, and there's a little bit of a theme with these next 3 European IPOs. So Douglas perfume retailer IPOing in Frankfurt on the 21st of March. It is raising €907 million, €850 million of new proceeds, and actually €57 million exit to one of the original founders. Now this is an asset owned by CVC. So this is a private equity owned company. And actually it's really interesting to think about private equity starting to try and shed some of its assets through IPOs in the context of a report that Bain put out earlier on this week that said that private equity around the world is sitting on $28,000 unsold companies worth more than $3 trillion.

Wow.

So there's this huge backlog of exits and liquidity events that need to happen. And one of those, as we've said before, one of those spigots that you want to turn on is the IPO market. And we look a lot to the IPO market in the US and maybe to the UK as well, but it seems like the IPO market is opening up in Europe. Which is super important. So Douglas looking to IPO at the top end of its price range, going to have an enterprise value of about 3 billion. Uh, Deutsche Bank is on the ticket with Goldman Sachs and UBS and UniCredit. So again, local bank, and it is going to list on the Frankfurt Stock Exchange. And the way you get involved in the Frankfurt Stock Exchange is you invest in the DAX, the 40 largest companies listed on the Frankfurt Stock Exchange. Now the DAX is up 7% year to date, 22% in the past year. And I think yesterday, 14th of April, broke through its 18,000 barrier, which it's never done before. So it's a, again, let's look at this from a national perspective. Actually, I'm going to give you a little quiz here. Who do you think— can you get any of the top 3 constituent parts of the DAX, the 40 largest companies? You're doing very well if you get anywhere near this.

I should know this because I used to cover the DAX as an index, as an analyst. So, well, Siemens is probably a big company.

Nailed it. Number 2, um, obviously software.

So Oracle's competitor is SAP.

Yep. Number 1, um, if you get, if you get a full house here, get back on the train.

What other German ones would there be? Oh, I can't remember that anymore.

Airbus is the 3rd, €126 billion market cap. So SAP is the biggest constituent part with a, again, software company €203 billion market cap. And obviously then you have all of the car manufacturers and you have Porsche, which IPO'd in 2022. It's a pretty, it's a $2 trillion worth of company in those spread across the DAX, the 40 largest companies. So again, this is a big beast and it's one that we really should be focusing on in terms of new IPOs, but also really solid performance and some massive companies in there as well.

Okay. Well look, next time I hit the department store, I'm going to seek out some Douglas and see what that smells like.

Yeah. All right. So that's Douglas. Let's move on to, let's go slightly south and go to Switzerland. So we're going to stay in Europe, a little tour of the European stock markets. So this is a company called Galderma. Now this is going to IPO on the 22nd of March, one day later. It's all kicking off. So Galderma's going to be one of the biggest IPOs. In fact, it's going to be the biggest IPO since Porsche in Europe. This is pretty big, right? So Galderma, it's a 2.3 billion euro IPO. It's a Swiss skincare firm. The main product is Cetaphil. It has a Botox competitor founded in 1981, joint venture between L'Oréal and Nestlé. And it was acquired by private equity firm EQT in 2019. There's a really, there's a bit of a theme here. It's looking like it's going to get a market cap of about 12.6 billion Swiss francs. It's pretty big. Add debt onto that and you've got a market cap of between $16 and $17 billion. So pretty chunky. And as I said, it's the largest listing in Europe since Porsche. Again, this is the European IPO market picking up. In 2023, there were only $14 billion of listings in the whole of '23 across the whole of Europe. Now I've just mentioned about $3.5 billion worth of listings in the last 5 minutes. You know, so this is picking up. Private equity is getting out of positions. The market is definitely picking up, and this is all happening on the SIX Swiss exchange. So the SIX is Europe's third biggest stock exchange. You get into the SIX by investing in the Swiss market index, which is up only 5% year to date, 11.3% the last year. So it's not quite performing as well as Germany and the US and Dubai. Again, here comes the quiz. So the Swiss market index is the 20 largest Swiss stocks. Can you name any of the top 4?

Yeah, Nestlé, because the reason why I know that is because they used to be proportionate of about 40% of the Swiss index many, many moons ago. It used to be like Nestlé news comes out, the Swiss market basically just totally correlated with it.

So that's 280 billion Swiss franc market cap. That is the biggest company in Switzerland. You're absolutely right. Can you get any of the others?

God, when you talk market cap, it's such a weird figure now because then they're such a massive company that when you think about their brands that they have, which is basically when you go to supermarket, nearly everything, and you think about the commodity, just general food that makes the world tick. And they're only $280 billion. You're so anchored to like $2 trillion nowadays.

Yeah, absolutely. And again, really good to, to do these tours of different, different indexes in different countries to understand that the world is not Nvidia and Apple and Google. It's, it's quite a lot of these other companies. And $280 billion is a massive market capitalization, right? It's just nowhere near the US, the mega caps.

Well, I'm assuming UBS is now bigger having consumed Credit Suisse, so they're, they're very large these days. And then in the pharmaceutical space, Novartis would be the, the player against the US and AstraZeneca. Yeah, they're probably my 3, I'd say.

Yeah. So you got 3 out of 4. UBS is the smallest out of those 4. Roche you missed at 241. Brilliant. So there you go. Another pretty significant stock market that showed decent returns over the last year and is about to have the biggest IPO, European IPO since Porsche in 2022.

Yeah, I did a post yesterday and actually you commented on, you've already commented on a very large amount of deal flow. So I'll flip the quiz on you now. I got the latest Global M&A Advisor rankings year to date, 2024. So who do you think is the top in terms of value of deals?

It's a good question. Top 3: Goldman Sachs, JP Morgan, Evercore.

So Goldman Sachs, JP Morgan. So JP Morgan number 1, Goldman Sachs number 2. So JP's done $181 billion, Goldman Sachs $149.7 billion. Evercore is one of the biggest risers on the table because it was on some big tickets this year. Yeah, yeah, they're currently sat in 6th. Okay, they were previously ranked 15 last year. Uh, the biggest actually leap of all of them in the top 10 is Jefferies. They've gone from 24, they're now clocking in at number 7 so far this year.

Shout out to Jefferies.

Very good. And then MS was— is currently third.

MS is third. Okay, very interesting, very interesting. Well, look, Goldman Sachs and JP Morgan are two relatively safe bets for those top two, but, uh, yeah, good to see some of the smaller players coming in. And Evercore is by no means small, but it's definitely a kind of, uh, an M&A-specific advisory. Cool. Well, let's go, uh, let's go to Italy.

Yeah, Italy. What have we got?

Look, okay, so you've parked up in Dubai, you've got a nice bit of spray in Germany, you've got your skincare brands in Switzerland, and now you're going to get some pretty nice shoes in Italy. So this is Golden Goose. So Golden Goose is an Italy-based luxury shoe brand, again owned by private equity, Permira. It's actually previously owned by Carlyle. The reason why I know that is because my friend who used to work at Carlyle, I remember him turning up with these shoes and he is not the kind of guy that usually wears flashy golden goose shoes that, you know, they've got that superstar logo worn by the likes of Taylor Swift and Selena Gomez.

Yeah. So look, the, you know, the investment bank guys have got their Patagonia on, the PE guys have got to go better, haven't they? Got to go bigger.

Get your loafers back on. Anyway, these shoes, handmade luxury in Venice, €500 a pair. The typical kind of story that we've spoken about.

They're actually handmade in Venice.

Is that their thing?

Yeah, marketing, isn't it?

Oh my days, handmade in there, right in there. Yeah, I assume not right in the middle of Venice, but yeah. Anyway, um, so they are going to be listing At some point, you know, in H1 of 2024. So we don't have quite as definitive a date buoyed by the success of Birkenstock, of course. But interestingly, and unlike a lot of other fashion companies, they're not going to list in the US, they're going to list in Milan and they are going to be listed by JP Morgan and Mediobanca. So the joint global coordinators, again, you've got to have a local bank, it seems, when you're along with a US bank in order to be able to get an IPO away. It's a valuation of €3 billion and it is going to end up on the Borsa Italiana in Milan, which sounds very, very nice.

3 billion. How do they get a valuation of 3 billion for like high-end shoes? So I'm assuming per unit is expensive, but they sell volume very low. How does that math get to 3 billion?

Yeah, it's, it's, you know, I haven't looked into the details, but it's the kind of the LVMH-ification of valuations. So you can either get a really punchy valuation if you are A, doing AGI and large language models, or B, you have got scarcity through luxury. And that's probably what they're following, which kind of makes sense. But I do agree, 3 billion, I don't know what the financials behind it are, but it does seem quite high for a very, very niche set of shoes.

Yeah. Which, yeah, yeah, I suppose. No, I'm not going to say that they're a fad because they're probably not, but yeah, seems like a, yeah.

And it's, yeah, it's very, it's very, very dangerous to kind of, to predict a fad and they'll just end up being enduring and become one of the biggest companies in the world and it will be on record that you've called it a fad.

Out of interest, how is Birkenstock doing? Do we know that?

Oh, well, why don't you look up Birkenstock whilst I tell you about the Borsa Italiana. So the main index, the IT40, or also trading as the FTSE MIB if you want to get in on it, is up. Interestingly enough, it is up 11% year to date and 32% in the last 12 months. It's one of the only indexes that has matched the S&P. In terms of returns. So Italy has gone mega over the last 12 months and its largest constituents, Stellantis, we spoke about on the pod a few, couple of months ago, the car company, Fiat Chrysler, Peugeot Jeep, that's up 62% in the last 12 months. Ferrari is up 55%. Intesa Sanpaolo, the fourth biggest constituent is up 42%. So this is a stock market that's kind of flying. We never talk about it. We always talk about the US, but this is performing extremely well.

Yeah. I was just about to write a piece actually about Italy and the Italian bond yield has sunk to a 2-year low. So basically it's outperforming Germany at the moment. So yeah, things have gone—

and this is interesting because Italy from, doing a bit of research, Italy, the Italian components within the Italian stock exchange have always traded at a pretty significant country-specific discount to the likes of Germany and France who are deemed to be a little bit more stable and a bit more safe. But because of exactly what you were saying, this is why they're playing catch-up. And this is why the stock, the IT40 has increased 32% in the last 12 months. Because they traded at such a significant discount.

Okay, in terms of Birkenstock, yeah, so they're currently trading at $46.43. It looks like they, they opened around $40 back in, what, October? So they're off their high. $52 is the high, um, just a few weeks ago.

Yeah, I'd say that's solid. That's solid, isn't it? Yeah, yeah, yeah.

All right, final destination then. And am I right? You want to go for some Sexy Tea? Is this—

I want to go for some Sexy Tea. Yeah. So this is in Hong Kong. So I've listed this at some point in the future. And the main reason why I wanted to bring this up was A, Sexy Tea's a great name, but B, this, the actual name of Sexy Tea, that's just the brand name for this bubble tea company that's got 500 stores across China. The actual name of the company is the Hunan Shaiwei Cultural Industry Development Group.

Yeah.

Not Sexy Tea or, yeah, it's just that. All right. Okay. I don't see that becoming quite the meme name as Sexy Tea is, but anyway, so internet famous bubble tea brand, it's going to IPO later on this year. They've just announced that Morgan Stanley And China, the CIC, China International Corporation, are going to be on the ticket and they are going to list in Hong Kong. Now, if we were having this conversation 25 years ago, or maybe even as recently as 10 or 15 years ago, we would be talking about the Hang Seng Index being one of the most significant elements of any finance discussion. And Hong Kong being the second or third major financial center of the world. Over the last few years, obviously there has been a pullback from a Western perspective into Hong Kong and a reaching from China into Hong Kong, which has meant that the Hang Seng Index has really, really struggled. I mean, from all of the indexes that we've looked at today, It's the only one that's down year to date, and it's 13% down in the last year. So it has really, really struggled to attract those international capital flows that we, again, sitting here 10 years ago, would've expected.

Okay. Well, look, I'm going to ask you a question now. So of all of these, which one are you going to park your money in? There's obviously different reasons because they're really good investments, but yeah, well, which one do you think is the strongest out of all of these?

Yeah, so not, again, not knowing the, the, the valuation dynamics and, and things like that, taking it from a very high-level perspective, I would definitely eliminate Hong Kong just from a from a macro perspective. And again, this is A, not investment advice, and B, not with a great deal of intricate knowledge about what's going on. And then I would be very positive about Dubai. Dubai, you know, in terms of the nexus of power, influence, money, it feels like it is putting a massive shift into trying to boost out its capital markets. So maybe Dubai is what Hong Kong was 40 or 50 years ago. So I'll be pretty bullish there. And then look, I don't know, I don't know whether Italy is, is, is kind of that 32% uptick in the last year. Maybe that's priced in some of that, that discount. You can't, you can't go too far away from Germany. Is that boring? You just look at some of the companies, you look at some of the companies, SAP, Siemens, Airbus, VW, brilliant companies in there. What about you?

Yeah, I mean, kind of as you were describing it, the nexus, I like that. Yeah, I'm going boring and bankable and boring. Let's go car parks. I'm sure their car parks are a lot more lovely than a lot of the car parks in London. Or well preserved, I must say.

Yeah, yeah, yeah. All right, well, there, that's it. That's the investment advice done. Go out and buy coffee.

I will drop— I will put a poll on, um, the episode when it goes out, and I will list all 5. So let us know which one that you are the most keen on and would invest in yourself. Um, and that is it for this week. So yeah, have a good week ahead. Thank you, Steven, as ever, and thanks everyone for listening.

Thank you, Ant.