This morning buy now, pay later start-up Sezzle Inc. will hit the ASX boards via the issue of 35.7 million chess depositary instruments in the company (equivalent to shares) at $1.22 per share to raise $43.7 million.
On completion of the initial public offer there will be a total of 193.2 million CDIs on issue to give the company an indicative market value around A$217 million based on a value of $1.22 per share.
Looking at the prospectus Sezzle will have a total of 177.8 million CDIs on issue to mean the 35.7 million CDIs offered at the IPO represent a stake of 20% in the business, with founder Charlie Youakim retaining 49.1% and other individuals or institutional investors making up the difference around 30%.
Notably, no general public offer for CDIs was made under the terms of IPO, it was only available to participating brokers' clients, institutions, and "select investors nominated by Sezzle in eligible jurisdictions". Ord Minnett is the lead broker for Sezzle.
As a rule of thumb for retail investors the "hotter" an IPO is expected to be (i.e. the more demand for shares) the harder it is for anyone other than a select few to obtain shares. Logically the more pent up demand an IPO can create the more likely it is to "surge" at the open and produce stag profits for early investors, existing shareholders and select invitees.
On the other side of the coin retail investors should be wary that the more an IPO is promoted to them the more likely it is there is little demand for the shares which may be a reflection of the quality of the company or its prospects.
Sezzle is also unusual in that it's a U.S. incorporated company that operates in the U.S., but has chosen to list 9,500 miles away in Australia.
It also does not have a direct listing on any US exchange to mean its decision to list here is worth even more scrutiny.
It seems Sezzle has chosen to list in Australia because of the wild investor enthusiasm for anything in the buy now, pay later space and that the initial public offering has been structured with a relatively small amount of shares issued to create huge instant profits for subscribers.
That's no surprise and you can hardly blame Sezzle or its fee and profit-hungry advisors for wanting to take advantage of the popularity of the space with investors in Australia who have seen the likes of Afterpay Touch Group Ltd (ASX: APT) and Z1p Co Ltd (ASX: Z1P) rocket in value over the past couple of years.
Even a little known buy now, pay later player named Splitit Ltd (ASX: SPT) with hardly any retailers signed up rocketed in value 10x after its IPO!
As at June 30, 2019 Sezzle reports it had 429,898 active customers on 5,048 active merchants that generated merchant fees (as a proxy for revenue) of just US$2.1 million as at June 30, 2019. For FY 2018 it made a net loss of US$4.2 million dollars.
As you can probably guess I wouldn't suggest buying Sezzle shares on valuation or sanity grounds among others, but I expect we'll see its shares rocket this afternoon.
