WeWork would have been the largest IPO down round of 2019, but it may be another SoftBank-backed deal instead.
Chinese software platform OneConnect Financial Technology (OCFT) faces a $2.6 billion valuation markdown on next week’s offering - the largest IPO down round in years based on dollar amount.
At the midpoint of the $12 to $14 range, OneConnect plans to raise $468 million at a fully diluted market cap of $4.9 billion. It previously raised $750 million in a 2018 round led by SoftBank that valued the company at $7.5 billion. On a per-share basis, a $13 IPO price represents a 42% cut from its last round.
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OneConnect will likely be one of the largest IPO down rounds of all time, behind notable examples like Square in 2015 (SQ; $2.8 billion markdown) and Reata Pharmaceuticals in 2016 (RETA; $2.8 billion markdown). In Square’s case, the private valuation was inflated due to a generous ratchet and the company IPO’d during a bout of market volatility, while Reata went public after failing a key clinical trial. Both companies managed to deliver superior post-IPO returns, though other large IPO down rounds like Domo have since disappointed.
| Notable IPO Down Rounds | |||
|---|---|---|---|
| Company Description |
Offer Date |
Valuation at IPO* |
Valuation Markdown at IPO† |
| Square (SQ) | 11/18/15 | $3.2B | -$2.8B |
| Mobile payment service provider for small businesses. | |||
| Reata Pharmaceuticals (RETA) | 5/25/16 | $237M | -$2.8B |
| Developing therapies for pulmonary hypertension. | |||
| OneConnect Financial Technology (OCFT) | 12/12/19 | $4.9B | -$2.6B |
| Provides of a tech platform for financial firms in China. | |||
| Domo (DOMO) | 6/28/18 | $560M | -$1.7B |
| Provides on-demand access to real-time business data. | |||
| Box (BOX) | 1/22/15 | $1.9B | -$0.5B |
| Provides a cloud-based storage and collaboration platform. | |||
Spun out of insurance giant PingAn in 2017, OneConnect provides a software suite of more than 50 products to Chinese financial institutions. The IPO prospectus is chock-full of buzzwords: its platform offers blockchain-as-a-service, big data analytics, and various AI-powered tools (it states that it has 772 AI-related patents).
OneConnect’s private valuation appears to be the latest example of a lack of pricing discipline from SoftBank’s $100-billion Vision Fund; the Japanese conglomerate was also the lead investor on WeWork (WE) and Uber (UBER), and is underwater on both investments. Additionally, OneConnect is coming public at a time when recent Chinese IPOs have struggled, while public investors have cooled on extremely high-loss companies (its EBITDA was -55% in the LTM).
