Alasdair Warrren, the chief executive of WE Soda in the UK, has withdrawn his plan to make the largest producer of soda ash in the world public. This was announced two weeks ago.
WE Soda blamed “extreme investor caution” in London for the Wednesday cancellation of what was to be the UK’s largest Initial Public Offering.
Warren said on Thursday, “London was the best option for us at this stage of our development”, before issuing an oblique threat that will likely irritate UK politicians eager to see the city attract major IPOs. Warren said on BBC Radio that “New York may be a viable alternative when we decide to return to the market.”
WE Soda’s choice would be a rare boost after companies like Irish building materials group CRH, and Cambridge chip designer Arm chose to list their primary stock on the New York Stock Exchange. Ian White, an analyst at Autonomous Research, says that the decision adds to a “pretty grim outlook” for London capital markets.
Analysts and investors say WE Soda’s planned IPO with an enterprise value of $7.5bn has failed in its own right: the company’s pitch was too aggressive and too expensive, regardless of where it took place.
WE Soda has cancelled its IPO at a time when listings are weak globally. High inflation and a weak economy have prompted investors worldwide to re-evaluate valuations. According to Refinitiv, only 30 companies listed in Europe in 2018, compared with 91 during the same period of 2022. A banker who was close to the proposed IPO stated that the banks tasked to sell WE Soda investors “deserved some blame”. But “many banks have been thrown out for years because [their valuations] were not high enough for owners”, who had “way, far, way too high expectations from the beginning”.
The banker said, “It is unfair to blame London investors or the London IPO Market.”
Another person involved in the deal said that the views of investors and those of management were far apart.
According to a third party with knowledge of the deal, bankers originally pitched WE Soda as having an enterprise value that was 12 times greater than ebitda.
Comparatively, Belgian chemicals company Solvay is traded at a multiple that’s just under five. The person claimed that instead, WE Soda’s bankers were pushing comparisons with Saudi petrochemicals company Sabic and Abu Dhabi based petrochemicals firm Borouge which trade at multiples of EV/ebitda of around 10 and 9.
Some investors did not believe that WE Soda was worthy of being in such company. Third person: “Nobody wakes up and says, ‘I’m going to invest in soda-ash.'” “Banks were pushing it really hard which made people suspicious.”
JPMorgan, BNP Paribas, and Goldman Sachs – where Warren worked from 2001 until 2016 – were the banks tasked to underwrite the botched IPO.
Richard Cormack was heavily involved in this sale. He is the co-head of Equity Capital Markets at Goldman Sachs. In 2014, he was named as one of four bankers who were dragged before a House of Commons Select Committee to explain his involvement in the privatisation of Royal Mail. MPs criticized this deal because it undervalued the company. Goldman declined comment on Cormack.
The failed IPO of WE Soda came a few days before CAB Payments Holdings, a fintech company, confirmed that it would list in London this July. CAB chairman Ann Cairns said that the failure “underscores both our confidence in this business and its potential for value creation, as well our confidence in Britain as the home of innovative and growing businesses”.
In 2023, only five companies will have listed on London’s Aim junior market. They are all raising around 30mn PS. According to Refinitiv, by this time last, 19 companies listed in London and raised £370mn.
Some market observers said that in addition to the investors’ concern about the company’s value, the unfavourable economic climate characterized by high inflation and rising rates of interest also contributed to this hesitant sentiment.
White, from Autonomous Research, said: “At this stage in the cycle you don’t get the benefit-of-the doubt as a potential new issuer.”