(Bloomberg) — Polish e-commerce platform Allegro plans to raise about 1 billion zloty ($266 million) in an initial public offering in Warsaw, seeking to take advantage of post-lockdown interest in businesses intersecting technology and retail.
Along with the new shares, the group’s private-equity owners Cinven, Permira and Mid Europa Partners also plan to sell stock in the IPO, the company said on Monday. The offering may make Allegro the biggest company on the Warsaw Stock Exchange.
For IPO-starved investors, Allegro has appeal as a play on the continued rapid expansion of e-commerce in Poland, a market of 38 million people and one of the European Union’s most resilient economies. While its leading position in the country doesn’t appear at risk, unless Amazon.com Inc. significantly ramps up operations, there are questions over the company’s prospects beyond Polish borders.
“It’s a perfect moment for the offering, with high interest in e-commerce and technology stocks,” said Lukasz Wachelko, an analyst at Wood&Co. brokerage. “Investors need now to evaluate the pros and cons of Allegro’s presence in only one country, and to assess how much it may grow further.”
The sale by existing shareholders will probably be larger than the primary offering, a person familiar with the transaction said. The current owners will keep a majority stake after the transaction, Allegro Chief Executive Officer Francois Nuyts said during a video conference. He declined to answer questions about valuation.
Bloomberg News reported in June that the buyout firms were considering seeking more than 2 billion euro ($2.4 billion) in the offering. They bought the business from South Africa’s Naspers Ltd. in 2016 for $3.25 billion.
Ahead of the IPO, banks working on the offer were valuing Allegro, including net debt, at 26 to 27 times its earnings before interest, taxes, depreciation, and amortization, the person said. Based on projected earnings of 2 billion zloty for 2021, the enterprise value is expected to be almost $14.4 billion, and the equity value expected to be about $13 billion, the person said, adding that about 20-25% of the company is expected to be floated.
With such a valuation, Allegro’s market capitalization may top computer games maker CD Projekt SA, Warsaw’s biggest stock worth around $11 billion.
Headroom for Growth
Allegro’s IPO comes as shoppers turn to online sites to buy everything from clothes to homeware after lockdowns across Europe kept people indoors for much of the year. Britain’s The Hut Group Ltd. also is looking to ride this boom, aiming to raise as much as $2.4 billion in a London listing.
For Allegro, which generates more than 80% of its revenue from fees on its marketplace for more than 12 million buyers, the pandemic boosted sales to 52% to 1.77 billion zloty in the first half of the year. Adjusted earnings rose 28% to 808 million zloty.
Its net debt was 3.7 times adjusted Ebitda at the end of June, and is expected to fall “well below” 3 by the end of the year, Chief Financial Officer Jon Eastick said.
Apart from the virus tailwinds, Allegro is betting on an increase in Poland’s relatively low online retail market share, which was at about 8.4% in 2019, compared with 18% in the U.K. and 27% in China.
The company has no plans to expand beyond the Polish market, which remains “the number one priority,” according to the CEO. Allegro also won’t pay dividends in the foreseeable future as it will focus on market opportunities and reduce its debt leverage, the CFO said.
The company estimates its operations are 12 times bigger than Alibaba Group Holding Ltd.’s Aliexpress, the second-most popular marketplace in Poland. So far, it avoided direct competition from Amazon.com. However, newspaper Dziennik Gazeta Prawna reported that the U.S. giant has plans to strengthen its foothold in Poland after agreeing with the Polish postal operator to start delivery services from November.
Europe’s anemic IPO market has seen only two listings raise more than $1 billion this year with volatile stock markets and the coronavirus pandemic putting a damper on new floats. Allegro is one of several IPOs anticipated in the coming months that could pass this cap, including The Hut Group and publisher Springer Nature. This year’s biggest offering so far is coffee giant JDE Peet’s BV’s $2.8 billion sale in May.
In Warsaw, mobile casino app maker Huuuge Inc. and computer game studio People Can Fly Group SA filed prospectuses with the Polish regulator this month in an attempt to cash in on the popularity of video games with people stuck at home.
Goldman Sachs Group Inc. and Morgan Stanley are global coordinators on Allegro’s listing, while Barclays Bank Plc, Bank of America Corp., Citigroup Inc. and Dom Maklerski Banku Handlowego SA are bookrunners.
Santander Bank Polska SA and BM PKO BP are bookrunners and co-offering agents in Poland in connection with the retail tranche. Bank Polska Kasa Opieki SA, Crédit Agricole Corporate and Investment Bank, Erste Group Bank AG, Pekao Investment Banking SA and Raiffeisen Centrobank AG are co-lead managers. Lazard Ltd. is the financial adviser.
The IPO, planned for the fourth quarter, includes an offering for retail investors and the company’s employees.
(Updates with analyst, company comments from first paragraph)
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